The Recession Gathers Speed...

I say that the NBER Business Cycle Dating Committee should decide this week whether the recession began in November or June. I don't see how waiting any longer will give us any more information useful in deciding between those two dates. And I don't see any justification for waiting--other than that perhaps one does not want to announce a recession call just before an election.

Yves Smith:

Real Economy Crunch Arrives: Layoffs Rise Sharply: When Goldman announced layoffs last week (3200 people, or 10% of its staff), it said there was no longer any place to hide. Unemployment claims are increasing at a pace that has caught some economists by surprise, indicating that the real economy downturn is picking up momentum at a rapid pace. Because many jobs, even low-level ones, entail training in company specific procedures (just think of the computer-related activities), employer has seemed reluctant to fire staff, and some had cut hours rather than axeing them. Now many businesses apparently no longer have that luxury...

Christopher Rugaber:

Unemployment Claims Rising Faster Than Expected As Recession Deepens: Goldman Sachs, Chrysler and Xerox all announced they were cutting workers by the thousands, adding to the woes of an economy beset by tighter credit and wobbly banks.... The Commerce Department will release its first estimate of third-quarter economic performance Oct. 30, and Wall Street analysts project it will show the economy contracted by 0.5 percent, according to Thomson/IFR. Many economists expect the decline to continue into the current quarter and the first three months of 2009, if not longer. The classic definition of a recession is at least two consecutive quarters of negative growth. Former Federal Reserve Chairman Alan Greenspan, testifying before a House committee, said he could not see "how we can avoid a significant rise in layoffs and unemployment"...

Louis Uchitelle:

Spending Stalls and Businesses Slash U.S. Jobs: Layoffs have arrived in force, like a wrenching second act in the unfolding crisis. In just the last two weeks, the list of companies announcing their intention to cut workers has read like a Who’s Who of corporate America: Merck, Yahoo, General Electric, Xerox, Pratt & Whitney, Goldman Sachs, Whirlpool, Bank of America, Alcoa, Coca-Cola, the Detroit automakers and nearly all the airlines. When October’s job losses are announced on Nov. 7, three days after the presidential election, many economists expect the number to exceed 200,000. The current unemployment rate of 6.1 percent is likely to rise, perhaps significantly.

“My view is that it will be near 8 or 8.5 percent by the end of next year,” said Nigel Gault, chief domestic economist at Global Insight, offering a forecast others share. That would be the highest unemployment rate since the deep recession of the early 1980s. Companies are laying off workers to cut production as consumers, struggling with their own finances, scale back spending. Employers had tried for months to cut expenses through hiring freezes and by cutting back hours. That has turned out not to be enough, and with earnings down sharply in the third quarter, corporate America has turned to layoffs.

“People have grown very nervous,” said Harry Holzer, a labor economist at Georgetown University and the Urban Institute, tracing cause and effect. “They have seen a lot of their wealth wiped out and as they cut back their spending, companies are responding with layoffs, which hurts consumption even more.” The unemployment is widespread, with Rhode Island the hardest hit. For Dwight and Rochelle Stokes of Phenix City, Ala., the layoffs are a family event. He lost his job two weeks ago as an aviation mechanic at the Pratt & Whitney jet engine facility near his home — a few days after his wife lost hers as a cosmetologist at Great Clips, a family-owned barbershop and beauty salon. “It got really slow in July and August,” Ms. Stokes said. “I would sit there for two hours, and some days we had only 10 clients, four of us for 10 clients.”

The broadening layoffs are most pronounced on Wall Street, in the auto industry, in construction, in the airlines and in retailing. The steel mills, big suppliers to many sectors of the economy, are shutting 17 of the nation’s 29 blast furnaces — a startling indicator of how quickly output is declining as corporate America struggles to adjust to the spreading crisis...

Comments

[Raph]

June 08 or November 07????
Econobrowser for example believes the recession started in Dec 07. Looking at the NBER website it seems it never took them so long to date the peak of a cycle. How politically driven is the process?
Thanks for your insights.

R.

[James Wimberley]

"Cycle Dating": Amish speed dating.

[SvN]

That's an interesting subjective estimate, Brad, but what would a quantitative model say?

Jim Hamilton gave a presentation at the annual CIRANO Real-Time workshop two weeks ago on "Calling Recessions in Real Time." (His slides are posted at http://www.cirano.qc.ca/realisations/grandes_conferences/risques_financiers/realtime08/rtschedule2008.pdf). In it, he runs through various models and presents up to date (as of first week of October) estimates of the probabilty of being in a recession state. All of his estimates were well below 50%. (I recall him speculating that if some of the October release data turns out as expect, this probability would break 60%.)

On the other hand, Aruoba, Diebold and Scotti (2008) "Real-Time Measurement of Business Conditions" (http://www.econ.umd.edu/~aruoba/research/paper13/paper13.html) describe a high-frequency measure of GDP that they are currently estimating at a weekly frequency. Borogan Aruoba provides updated estimates on his web site at http://www.econ.umd.edu/~aruoba/ADS_current.htm. The latest updates as I write this are October 11th. They show a drop in GDP that is already very nearly equal to the peak-to-trough drop experienced in the 2001 recession and larger than any non-recession drop in GDP in the past forty years.

[bakho]

Jared Bernstein has the good charts:

http://www.epi.org/webfeatures/viewpoints/20081024_jb_testimony.pdf

[Ken Houghton]

"perhaps one does not want to announce a recession call just before an election."

Right. Better that the new leader of NBER ruin the group's reputation for neutrality (such as it were, and it weren't much under M. Feldstein) by waiting until mid-November to celebrate the one-year anniversary of the recession with an Announcement Party.

(Some of us still think October 2007 will eventually win the battle, but November is not unreasonable. June 2008 would perpetuate the lie that the tax rebate worked.)

[Ken Houghton]

Btw, SvN, thank you. Heard about the Hamilton presentation, but had not seen it.

[Owe Jessen]

I would put money on the theory that NBER is not going to call a recession before the election, if only not to be seen as political. It has received considerable flak for not calling the end of the recession 1992 timely, and Republicans believe that this cost Bush I. the election.

[Bill Conerly]

Announcing a recession should not be a forecast. Suppose that starting tomorrow, the economic data improved. How would we treat the recent events? Would we say that it's a full-blown recession? With only one down quarter of GDP? I think, in the unlikely event that the economic news starts turning up tomorrow, we'd say that we just went through a mini-cycle or a "recessionette."

This may seem farfetched, because the forecast of bad news to come seems so unmistakable. However, what you are really saying is that you forecast enough bad news to come that this episode will be deemed a recession once all the data are in. I'd recommend that the NBER committee take whatever time is needed to be sure that they get the decision right. I'll grant you that it's just fine for everyone to say that we're in a recession now.

[Aaron]

The delay of the announcement seems in order with the last recession. Moreover, with the average duration of post war recessions being around 10.4 months topping out at 16 months we should be out of this recession sometimes between now and March 2009. Unemployment is a different story and could move down for the next 12 to 18 months. Maybe this recession is worse then all the others and we will top the 16 month number. 1981 actually was a controlled recession that was brought on intentially to beat inflation. In my opinion the catalyst for this one was the rising oil price. But for now oil prices are low again. So the catalyst that pushed us in the ditch is gone.

If seems job one for the Obama administration should be in the short run to try to increase the domestic oil supply and in the long term fund research for other energy sources. If we don't fix energy then we can't stay out of recession in the future. It put us in the hole this time and if it goes back above $100 it's likely to end any economic recovery or at least take the bling out of it.