December 11, 2002
Risks of a Double-Dip Recession?
The National Bureau of Economic Research's Business Cycle Dating Committee still thinks there is a risk of a double-dip in the recession that started in the spring of 2002. They are holding off on calling when the trough was until the economy starts growing more rapidly.
Posted by DeLong at December 11, 2002 03:19 PM
The NBER: According to the most recent data, the U.S. economy continues to evolve as in earlier months. Real personal income has generally been growing over the past year, fell slightly in July, and rose slightly in August and September. Employment generally grew modestly from May through October 2002, but declined slightly in November. The behavior of the economy this year indicates that the decline in activity that began last year may have come to an end. But recent data show that additional time is needed to be confident about the interpretation of the movements of the economy last year and this year. The NBER's Business Cycle Dating Committee will determine the date of a trough in activity when it concludes that a hypothetical subsequent downturn would be a separate recession, not a continuation of the past one. The trough date will mark the end of the recession. The committee will not issue any judgment about whether the economy has reached a trough until it makes its formal decision on this point. The committee waits for many months after an apparent trough to make its decision, because of data revisions and the possibility that the contraction would resume. For example, the committee waited until December 1992 to announce that a trough had occurred in March 1991...
What is the problem? Job creation? We have had high productivity growth and moderate to low GDP growth this year, so there is no reason for corporations to create a significant number of new jobs. Any added employment by the Federal Government is being offset by cuts through the states. So, not enough new jobs? The longer the cycle lasts the more pressure there is on prices, so deflation is a possibility. How do we get beyond this cycle?
Do we understand how serious the wealth loss of the past 3 years has been? The Fed has noted these 3 years are the only years of declining household wealth recorded since 1945. Rising home prices has not countered the investment losses and rise in household debt. But, we are an aging population with waves of retirement looming and need for income in retirement. How much of a problem will this wealth loss be?
Well the argument right now seems to be about whether or not the consumer can stave off a recession long enough for business to once again begin spending. With the refi market being used to prop up the consumer and seemingly not keeping up with credit card debt the answer seems to be no. Productivity gains, which seem to be nothing more than unemployment gains, might help but with further job cuts (Sprint) and bankruptcies (UAL) those gains will be meaningless to the consumer. Add to that the rejection of the corporate American products (MCD pulling out of the Middle East for instance, or Linux being adopted in China and India) and it begins to seem that "Globalisation" at least for some American products is coming to an end. And finally there is the issues of wages, the average engineer that designs chips in the USA makes over $50,000 while his Indian counterpart makes only about $8,000 as per Ashok Kumar of National Semi. Guess where those jobs are going?
The retail sales report, which I believe, is tomorrow should shed some light on this, along with the markets reaction.
Or something like that.
>>> The committee waits for many months after an apparent trough to make its decision, because of data revisions and the possibility that the contraction would resume. For example, the committee waited until December 1992 to announce that a trough had occurred in March 1991... <<<
Yes indeed. Which lead a lot of people in November of that year to be talking a whole lot about the recession we were all in, while just a few weeks later it was declared to have been over for nine months.
I don't know how long it will take them to date the trough this time, but they sure were a lot quicker about dating the peak.
>> ... over for nine months<<
Geeze, can't do arithmetic, can't control the send button, can't remember what I know outright ... it's like aliens are taking over my brain. (Innumerate, clumsy aliens.)
What was that husk stuff like from a broken pod around my bed this morning?