I don’t think I’m feeling quite as “green” as they are, and here are just a few reasons why. I’ve circled what could have been (mistakenly) interpreted as green shoots at previous points during the recession. In the end, they were just head fakes.
Let’s look (again) at Aggregate Weekly Hours (one of NBER member Jeffrey Frankel’s favorite metrics):
Industrial Production also gave us a head-fake green shoot last year, only to also fall precipitously again. It, too, has shown no sign yet of bottoming. We know that this is another measure closely watched by the NBER.
Lastly, at least for now (in the interest of getting this post up and a discussion started), let’s address Unemployment Insurance (UI) Claims. Yes, it is true that today’s number was better than expected, and that the four-week moving average has been moving in the right direction (i.e. down). However, after another false green shoot decline several weeks ago, continuing claims – which need to confirm the downward trend in the other UI series – have turned back up again, hitting another new record high today:
Look, I want this recession to be over as much as the next guy, but that fact that we’re all sick and tired of it just isn’t going to make it so. Yes, things have gotten a bit “less bad” of late. But “less bad” ≠ “recovery,” it only equals “less bad.” When we start seeing some real stabilization (dare I say improvement?) in the metrics that matter – especially to the folks who are going to make the call – we’ll have something to talk about, but not until then, in my humble opinion.
5 comments:
There are, I would note, two distinct questions that are all too often conflated: when will the recession end, and when will the recovery begin in earnest.
It is quite possible that the recession ends, without any significant recovery beginning. That is, if we hit bottom, it is quite possible for the economy to run along at between 0% and 0.5% annualized growth rates for a year or more.
Recall again the five potential growth drivers for GDP ... where normally a combination of two or more are required for a "robust recovery".
Debt-financed consumption ... this is a recession that was started by the collapse of a housing bubble and then accelerated by a financial sector meltdown, so debt-financed consumption is structurally locked into following rather than leading income growth for the next year at least, and quite possibly longer.
Residential and commercial property investment ... its close to axiomatic that when a bubble bursts, the sector concerned does not lead the next recovery.
Exports ... the US continues to pursue an importer's exchange rate, while the recession is the deepest global downturn since WWII ... so strong export growth is not in prospect.
That leaves government spending and investment in productive capacity. As I have argued, under the heading of a "Brawny Recovery", the very tardiness of the US in pursuing a New Energy Economy opens the prospect for quite heavy productive government investment in infrastructure which can be organized to drive private investment in productive capacity ...
... but relying on activist fiscal policy implies a political business cycle. Fiscal policy lags are likely to add up to a year or more, as it dawns on politicians that we are not going to have "good times are just around the corner" recovery, but rather that they are going to have to engage in the hard work of crafting the conditions for a recovery. And then it will be a further year before the follow on effect of investment in public infrastructure can begin driving private productive investment.
So a year or more of "stagnant recovery" as opposed to robust recovery is a quite likely prospect for the US.
Thing is, even saying "not quite as bad" is enough to get the doom addicts screaming at you for being a Pollyanna. Just go read the comments in any Bonddad DKos diary of the past three months.
Agreed that this could easily be... well, just about anything.
My personal view, and I'm no economist, has been that there have been some signs of rate stabilization in the data based on assumptions by consumers and businesses on two things -- one, that the initial financial crisis and credit contraction is done, and two, that there is "help on the way". Problem is, the credit mess (which isn't over, really) and other factors may have thrown us into all sorts of other instability, and the help that's on the way shows little sign IMO of being big enough to match the growing challenge when you start to look at state and local level contractions that are really only just getting underway in the start of the new fiscal year.
We've been, IMO, in a kind of a holding pattern for a bit, every piece of "leading" data holding its rate-of-change breath to see whether the other shoe hits and glances off, or smashes the current wobbly trying-to-get-balance economy into tiny bits. We may be recovering from the initial problems that threw everything to hell, but those led to other large scale problems that still need to be addressed. The demand destruction in this recession has been serious, and can still hit us harder if rising unemployment and sizable wage declines continue.
The upshot? We could stay here for a long time, we could start to slowly improve, or this could be the small pause before another plummet. I see absolutely nothing out there that I can take as clearly pointing to any of these, at least with any solid confidence. As far as I'm concerned, folks claiming particular confidence one way or another right now are kidding themselves.
Copper coinage.
The last five months on the DJIA include a runup of 37.2% from approx 6470 to 8877.
The five months on the DJIA from 12/9/1929 include a runup of 31.9% from approx 226 to 298.
The 36 months on the DJIA from 12/9/1929 saw a collapse of 86.2% from approx 298 to 41.
Don't tell me you're confident that the worst is over.
President Obama's Recovery Plan has applied the brakes to the collapse... for now...
but we better damn well get a real stimulus plan ASAP to apply the gas to the economy... or else.
Jimdotz:
Two points:
There is a big difference between the economy and the markets. Regardless of what the market does, I don't think we'll be printing another set of -5% or worse GDP numbers.
Having said that, there are differences between now and the Great Depression in many ways. Thank goodness we at least learned some lessons from that time.
I'm hardly sounding the all-clear, but I do believe the worst -- in terms of economic performance -- is behind us.
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