. - by New Deal democrat
Despite the common belief that a recession is defined by two consecutive quarters of economic contraction, in fact the official arbiter of business cycles, the NBER, defines it as a pronounced and sustained downturn in production, sales, income, and employment. Measured by that yardstick, and subject to revisions as always, as of now there is no question that there was no recession in 2012. Production, sales, income and employment all finished at their highs for the year.
Here is an update of the graph I ran several weeks ago, in which the four coincident indicators of industrial production (blue), real retail sales (red), real personal income minus transfer receipts (green), and payrolls (orange), are normed to 100 at their previous highs in July:
As you can see, all four have made new highs as of December. In short and simple terms, no recession.
At least one prominent forecasting firm prefers to make use of real manufacturing and trade sales rather than real retail sales. Those were updated through November this morning, and those too made a new high (h/t Doug Short):
But what of yesterday's -0.1% GDP print? If it truly is a one-off negative due to the biggest reduction in military spending in 40 years, then it is meaningless in terms of the state of the underlying economy.
The more interesting, if depressing, question is, what if the 2% reduction in take home pay, plus policy mistakes such as the impending sequestration, cause this quarter to be another, consecutive period of contraction? Then it is at least possible that the NBER will pick December as the peak of business activity, and date any recession from that month.
But unless there are significant downward revisions, that will most certainly not be a vindication of those who said we were entering a recession "now" in September 2011, then most likely in the first quarter of 2012, then by midyear 2012, and then in July 2012.
1 comment:
Military spending made a big unexplained surge in Q3. I assumed that was a statistical anomaly at the time, and apparently I was right considering the big decline in Q4. But if you average them together, it comes out to a slight decline in each quarter.
As far as one off's, you could say how hurricane Sandy helped car sales or how a decrease in imports helped GDP. Those aren't that significant, but they did help GDP in a meaningful way.
Exports also played a major role in the GDP decline. I remember back in Q3 where there was a very significant one month surge in exports that seemed at the time to be a statistical anomaly. I apparently was right on that too, as the nearly year long downtrend continued right after. So if you average Q3 and Q4 exports together, you again get slight declines in each quarter.
So all in all, I believe you can pretty much average Q3 and Q4 GDP together to get a better gauge of the current state of affairs. Right now the economy is growing around 1-1.5%. How the economy does in Q2 imo will depend on if housing construction can continue climbing, how consumers will react to the tax increases, and what happens in China.
About housing, the big growth in housing starts has mostly been due to seasonal adjustment late in the year. It has happened during months where there tends to be little construction. How construction does in March, April, and May will be far more important.
For China, the new stimulus is only large enough to help the construction/manufacturing sectors until summer. So I think we could get a slight rebound in manufacturing for a few months in the spring here due to that. The big X factor will be commodity prices. So while manufacturing could go up a little, higher gas prices combined with the tax increases could really take a bite out of consumption, perhaps pushing it close to flat line or even negative, depending on how much commodity prices go up. Now if the surge in growth in China is weaker than expected, manufacturing will likely continue its trend of gradual contraction, but commodity prices will go down and consumption can be maintained around 1-2% on an annualized basis. Either way we are looking at very slow growth for the first half of the year or even thru Q3. A contraction is very possible without an external event, but an event in Europe, Japan, or with Iran would put us into contraction easily.
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