Tuesday, September 21, 2010

NBER confirms Bonddad and I were right

- by New Deal democrat

In December 2008, with the economy in freefall and nearly one million workers losing their jobs each month, I asked Is there Hope for an Obama Economic Recovery in 2009?. After noting that " This is an economy in free-fall" and that "a Deflationary Bust -- the first since 1938 -- is in full force, " I wrote that
Left to its own devices, I suspect the economy would succumb to a deflationary spiral. But Ben Bernanke and the Federal Reserve know this as well: Bernanke is a scholar of Federal Reserve mistakes during the 1929-32 Great Depression. He is resolved not to make the same mistakes that were made then .... He is aiming a veritable monetary firehose at the deflationary vortex, hoping to flood it with money and so overcome the incipient deflation.
There is at least some hope [that] ....a new Administration in Washington populated by Economic Adults may unfreeze the logjam of money supply sitting in banks and not being lent out. Certainly there is a pressing need for massive infrastructure investments that can lead to renewed bank lending and economic expansion on Main Street.

Yes there is Hope for an Obama Economic Recovery in 2009.
Because the 2007-2009 economic downturn had much in common with the Great Depression, and because despite that fact, very few statistical series cover that period of time, in January 2009 in a series of 5 posts, I examined "Economic Indicators during the Roaring Twenties and Great Depression" in detail. Noting that the Great Depression as well as the 1938 recession, and other recessions during the 1920s had bottomed when the rate of YoY change in prices bottomed, I concluded:
the indicators we have studied from the earlier Deflationary period suggest that the recession might bottom out in about Q3
By April, it was reasonably clear that a wage deflationary spiral was not going to happen, and that gave me confidence enough to write:
For purposes of this discussion, I am going to assume that the optimistic scenario turns out to be the correct one: viz., that the YoY inflation rate will bottom in about July 2009 and that will mark the end of the recession and the beginning point of any recovery.
By early May 2009 we had had both a bottom in retail sales, stabilization in the housing market, and the signs of significant decline in both initial jobless claims and monthly payroll losses. On May 07, I wrote:
This week's decline increases the likelihood that the recession is very close to bottoming to more than 50%.

The continuing weekly decline in weekly jobless claims is not the only indication that the recession may be close to bottoming out.... Last Friday the ISM Manufacturing Index for April was released. It was all but ignored in the economic blogosphere.... In summary, the NAPM Manufacturing index's reading for April is consistent with the recession bottoming out, and a recovery beginning almost immediately.....

.... the NBER may ultimately date the end of this recession from June or July of this year.
Four days later, referring primarily to the Leading Economic Indicators, which were almost all showing signs of turning upward, Bonddad and I jointly wrote
there are plenty of reasons, those listed above not being in any way exhaustive, that people like us are saying that the economic situation looks like it is getting ready to improve.
By the end of August we were both confident, and correct, enough to write bluntly that This Recession is Over.

While we were writing the above, we came under criticism from Doomers who claimed, in July 2009 that it was The End of the End of the Recession touting that
If you're like the rest of us, and you can handle the truth about our economy, here's a quick summary:
....-"...the economy is leaps and bounds away from anything remotely resembling a recovery."
while another in the same month of July derisively claimed that Green Shoots are turning into Brown Weeds:
"Some Green Shoots supporters have declared that the bottom is in. They point towards various short-term trends, and if you don't look too close, it appears to support their cause.... If you look hard enough you can find Green Shoots, but do they actually exist in the real world? Sadly, no..
As late as this July, latching onto a column written by Calculated Risk about the NBER's recession dating (which I also criticized, also correctly as it turned out), one of them claimed:
if another recession starts this year, it will almost certainly be dated as a continuation of the "great recession" that started in 2007. If so, I'll need more blue ink to shade all my graphs ...
IMHO, more likely than not, these are the realities of our economy heading into the last four months of the 2010 election cycle.

In short, there can't be a double-dip recession if the Great Recession never ended, in the first place.
Yesterday the NBER settled that debate. They confirmed that the Pied Pipers of Doom were wrong. At the very time they were writing the above bombasts, the economy had begun to recover.

More importantly, Bonddad and I were right in calling the bottom of the Great Recession -- not just contemporaneously, but months in advance.