The talk of "recession" is going to be self-fulfilling prophecy:

Here are the numbers per a recent article by John Lott (whether you like Lott or not, these numbers are easy to find and prove):

Unemployment:
The average unemployment rate during President Clinton was 5.2 percent.
The average under President George W. Bush is just slightly below 5.2.
The current unemployment rate is 4.8 percent, almost half a percentage point lower than these averages, and by all definitions considered full-employment.

Inflation:
The average inflation rate under Clinton was 2.6 percent, under Bush it is 2.7 percent.
True the inflation rate over the last year has gone up to 4 percent, but that is still lower than the average inflation rate under all the presidents from Nixon through Bush’s father.
Gas prices are indeed up 33 percent over the last year, but to get an average of 4 percent inflation means that lots of other prices must have stayed the same or gone down.

Misc:
Seasonally adjusted civilian employment is 650,000 people greater than it was a year ago.
Personal income grew at a strong half of one percent in just February.

Despite all that, this last week, Barack Obama proclaimed “As most experts know, our economy is in a recession.” Hillary Clinton made similar statements last fall. Yet, as any economist knows, a recession is two consecutive quarters of negative growth, and we haven’t even had one single quarter of negative growth reported. The economy slowed down significantly during the end of last year, but that was after a sizzling annual GDP growth rate of 4.9 percent in the third quarter.

Housing has obviously been a big drag on the economy, but many other sectors of the economy, such as exports, have been doing well, some extremely well. For example, aerospace exports increased by over 13 percent last year.

It was interesting that this article confirmed what I have been "feeling." While I continue to hear this never ending drumbeat of recession, where I live people are doing well. Sure the housing market slowed down, but it was due for an adjustment here as it was elsewhere. Where there have been large adjustments it seems to be reflective of speculators making bad decisions (Florida, Vegas, Arizona), and people just getting in over their heads. Unfortunate, but no different from the Internet bubble that adjusted people's irrational exuberance and bad decisions in the late 90s under Clinton.

I think the reason that we are seeing such negativity is:

1. Gas prices touch everybody every day/week. (if you buy bottled water or Starbucks, you are disqualified from complaining about gas prices).
2. The housing bubble because when it goes bad, it really sucks and the anecdotes are really emotional.
3. The election where the candidates want to say how bad things are so they can say all the things they will do to fix them.

It is a perfect storm that will walk us right into a self-fulfilling recession if we aren't careful.

Where is this reasoning wrong?

NCAces

Gas and other energy prices aren't figured in inflation. Neither is food. Thus, prices are rising more than the 4% inflation figure indicates. Everyone is saying that GDP growth will be at best flat for the first 6 months of the year, and they probably aren't too far off. I don't know if we're going to get two quarters of negative growth or not, but it doesn't matter much if the economy grows at -0.5 or 0.5%, the economy is still crappy.

I don't know about the inflation figures so I'll go with what you say. But, it seems to me to be a gbig difference between a cooling down economy, and going into recession. I simply fear that with all the negative crap we hear all the time, it could have an effect.

NC, I think you're underestimating the impact that a receding housing market has on the welfare of the economy.

wage growth has been stagnant so the increases in consumer spending we were seeing post 2001 was mostly due to housing bubble.

UE numbers think weve gotten into enough disputes about how terrible a statistic it is.

I dont think we can really provoke a self-fulfilling recession. I mean All the economic numbers are cooked to show were doing better then we are (inflation, UE, jobs added)

4.8% hides those not looking for work. that # has increased.

CPI-U has many issues. it is lower than it otherwise would be since it was created to correct "over"inflation of goods. specifically it uses a hedonic pricing mechanism. whatever CPI-U gives, i'd add an extra 2% just as a guess (the "real" inflation figure is likely between the new CPI and the old CPI). for example, the old CPI probably was too high. this CPI is probably too low.

employment figures have now FALLEN for 3 months in a row. that only happens in recessions.

[quote]Personal income grew at a strong half of one percent in just February.

prices are growing faster than income, even at 4%.

a ton fo that was due to inventory restocking and strong consumer demand. that was clear from the 4th Q #

housing/constuction etc. contribute a great deal to consumer spending which contributes 70% to GDP.

exports contributed 12% in 2007. a 50% growth in exports wouldn't do as much good as a 10% fall in consumption would do bad.

consumer confidence is at over decade lows.

the economist published the findings of research that found that:

1) for every $100 fall in the price of houses, consumer spending falls by between $4-$9 and this occurs over a longer period of time (i.e. is a constant drag on consumer spending).

2) for every $100 fall in financial wealth (stocks etc.), consumer spending falls by between $3-$5 and that reduction is immediately incurred.

there are tons of pessimistic data out there. for instance, the ISM figures have been below 50 indicating a contraction. this doesn't happen when we are growing strongly.

other indices measured the same way have registered below 50 but i'm not 100% sure.

if we are not in recession now. we will be very shortly.

if you have a "feeling" i guarantee you'd find an article to confirm it.

recession, like housing, doesn't occurr evenly accross the country.

in the history of the case-schiller index, housing prices have never fALLEN on any basis. they have now fallen nationally by 10%. that is a big big big adjustment and even at that price there are nationally fewer takers. prices will likely continue to fall as the overhand of unsold homes have yet to be worn down.

very different, see consumer spending effect #s above. also, financial markets don't drive a huge % of GDP growth. housing does.

i just told you.

(btw, i'm not a gloom & doomer. i'm a former economist and aspiring global macro trader. i follow the data.)

if we aren't in a recession now. we will be extreemly shortly.

Barron

Sorry for the slight poker content in the politics forum but if you come to Casino Arizona and look around I think you've got to conclude that either there is a recession or a whole lot of ppl went busto all at the same time.

"Recession" is a technical term, I believe defined by x number of months without growth. Whatever that number is, we don't have evidence that it has happened yet.

On the other hand, there is plenty of evidence that the economy is generally in terrible condition, and virtually no elected official is saying otherwise, including Bush.

What country do you live in OP. All the people I talk to who are small business owners have said that the last two years have been the worst in recent memory. Maybe that's because I live in Florida and we depend a lot on tourism and was hit hard by the Housing market bubble first but we are definately in a recession.

Please don't say unemployment % aren't accurate because less people are looking for work. That's how they have been measured for a very long time and is the standard economic definition of someone unemployed. It is not the result of the Bush Administration fudging the numbers.

just because it is how it has been done, doesn't mean that changes in "looking for work" figures won't impact an analysis.

the rate of looking for work is higher now (i.e. frustrated job hunters) than at most any other time conditional on the rate (i.e. this current UE rate with the given proportion looking for work is not common and therefore impacts the analysis).

i never said anything about anybody fudging any data.

Barron

Its not that its 'fudging' its a flaw in UE rate which rears itself when comparing two periods without accounting for important differences (labor force participation being one).

Dcifer covered most things, I would mention that you also want to look at hours worked in addition to UE and LFPR.

I live in Cary, NC ... look over there <<<<<<<<

I am a small business owner, and it appears that our sector is not being impacted. But I am not trying to project my situation on the situation as a whole. That would be why I came here and posted the question.

I didn't say unemployment % aren't accurate. Not sure where you are coming from on that.

NCAces

Good post, dcifrths ...

This is the part that I think is being influenced by the constant negativity. What is going to happen to consumer confidence if from this point forward we have non-stop presidential election cycles where the party out power continually says how bad things are ... even if they aren't. Or at least worse than it really is. I believe that is going to be a problem.

Also, where you state that some of the numbers are wrong, doesn't that mean the ones that I compared them to are wrong. If, for example, the inflation rate is understated by 2%, wouldn't that also be true for the other numers cited? If so, and we are looking at this from a comparative perspective, then it still isn't as bad as it is being touted as.

NCAces

It's important to note that both the new and old methods for calculating CPI excluded energy and food. Higher energy prices are a huge drag on the economy.

You seem to be thinking of Core CPI, which is CPI minus food and energy. The 4% rate includes those items.

You may not be specifically implying it but that is the impression some people might get.

How do you know that they are frustrated job hunters? They could also be retirees. Considering that the baby boomers are retiring now, this could most likely be the case.

i don't get what other #s you are talking about in the second paragraph.

in terms of the first paragraph it does reek a bit of the classic biblical matchup between the chicken and the egg.

that said, the #s have been crappy for a little bit now and the consumer confidence index itself is determined from some very specific questions (do you plan on spending same compared to last month etc.) that try to get at expected consumer actions rather than "beliefs" which i would think are far far more subject to media and other types of manipulation.

bottom line: it is pretty bad at this point and likely to get worse.

corrallary: it isn't bad everywhere.

Barron

honestly, you are now reading into this. i never meant it, implied it, or otherwide. i said the data obfuscates (hides) things that could impact the analysis.

retiring rates don't change that fast from month to month. the proportion of those who "stopped looking for work in the past 30 days" that are retirees is likely to be a very small %.

Barron

Can you cite this please, the last time I discussed this this was false between 2006 and 2007.

http://www.bls.gov/news.release/empsit.nr0.htm

Barron

So where's the increase in this number?
Is it lower than it was under Clinton or historically?

i didn't look back to clinton era but will in a sec.

the #s i focused on were changes from last month:
Not in labor force + 650,000
Civilian labor force - 450,000
Job changes in non-farm employment from Jan to Feb ~ -80k or so

Barron

As I discussed in the prior thread, this discrepancy can be explained by the differences in the methods of the statistics you are using. The numbers you are citing are based on a survey of large companies. The UE number is a household survery. Small businesses are not included in the labor number survery. Small business employment has grown a lot because of increased communication and travel capabilities. This accounts for the discrepancy. The hard numbers of the household survey that you cited do not.

NCAces

The method for computing inputs for the inflation rate was changed (in the early 90s I think).

Yeh all posts Ive seen by barren seemed like educated bullish investor. I Wouldn't expect barren to be so bearish but he's calling it for what it is



Found a good link highlighting the magic of the birth/death model http://globaleconomicanalysis.blogsp...ob-growth.html