Lakshman Achuthan and Harm Bandholz say the recession will proba. Two of my favorite somewhat-off-the-beaten-track economic forecasters just came out with strikingly optimistic pronouncements this morning. How optimistic? The recession-should-end-in-a-couple-of-months optimistic. First was Lakshman Achuthan, whose Economic Cycle Research Institute was founded by the patron saint of Leading Economic Indicators, Geoffrey Moore. ECRI—which has had an excellent record in recent years of calling economic turning points when they happen—compiles a Weekly Leading Index that has been trending upward since mid-March. With WLI growth rising to a 27-week high, U.S. economic growth, which is now at a record low, will soon begin to improve. Well duh, I thought. What I didn’t say in that quote is that while most may say, “so what?
Meanwhile, Harm Bandholz of UniCredit Markets & Investment Banking was even more direct: We estimate that inventories fell at an annualized 5.5% in Q1. ECRI | News | Media Coverage - Mozilla Firefox. Leading Probability of a US recession. Asia: The Coming Fury. Forecasted GDP in the New Year. The description of the consensus that growth will resume around mid-year — while accurate — does not convey much information about what is the consensus regarding the depth of the recession.
Nor does it convey the degree of disagreement regarding the timing and strength of the recovery. To provide some insight , here is the mean forecast for GDP into the new year, according to the WSJ’s December survey. Figure 1: Log real GDP, from 25 Nov 08 preliminary release (blue), potential GDP (black), WSJ mean forecast from December survey (red), high and low forecasts (teal), and third highest and third lowest forecasts (green).
Source: BEA NIPA release [link], CBO estimates of 9 Sep 08 [xls], WSJ survey of forecasters from December [link]. The mean forecast indicates a recovery (i.e., resumption of positive growth) starting in 2009Q3. The range of estimates is quite wide, but is driven by outliers. Signs of a thaw. Yes, I saw the discouraging headlines. But I also see signs of hope in last week’s economic news. Let me begin by acknowledging the awful employment news. This was undeniably grim, though popular descriptions that BLS had reported the biggest job loss in any calendar year since 1945 are perhaps unnecessarily alarmist. Population growth would naturally mean that both job gains and job losses would be expected to be bigger absolute numbers than they used to be, and there’s no special reason to look at calendar years rather than all 12-month intervals.
The graph below shows that in percentage terms, the employment decline so far is similar to what we see in a typical recession. But my primary concern has not been unemployment per se but instead the dysfunctional financial market that produced it. These may be among the developments that persuaded the Federal Reserve it could begin the process of contracting its now enormous balance sheet.
The Residential Rental Market. By Bill McBride on 1/09/2009 02:47:00 PM Yesterday I linked to an article in the Los Angeles Times about declining residential rents: Housing downturn hits L.A. -area rents There are several different factors impacting rental supply and demand - and therefore rents - for residential properties. First, there has been a significant shift away from homeownership: Click on graph for larger image in new window.
The homeownership rate decreased slightly to 67.9% in Q3 2008 (most recent data) and is now back to the levels of the summer of 2001. This would suggest a rising demand for rental properties. Second, a large number of homes are now sitting vacant: This graph shows the homeowner vacancy rate. The recent surge in homeowner vacancy rates is probably due to foreclosures and other distressed properties. So the first two graphs might suggest rising rents. However the supply of rental units has been surging: This graph shows the number of occupied (blue) and vacant (red) rental units in the U.S. Roubini: Two Year Recession. 2009 will be the nightmare on Main Street | vox - Research-based. Every economist is predicting a macabre 2009, but no one knows for sure how bad things will get or who will survive.
This column, by comparing the current crisis to uncertainty shocks of the last 40 years, predicts GDP growth could be reduced by as much as 4.5%. But, if politicians protect free markets, growth should be back in 2010. Every horror movie fan knows the scene before the attack. Creepy electronic music plays. The victim is shown from behind. The camera scans around the bushes, in the dark, to the sound of heavy breathing. You know something evil is going to happen, but not when, where or how. Right now the world economy feels a lot like that. In this piece I want to provide one way of predicting the impact of the credit crunch on US and UK growth. In comparison, the credit crunch is a monster of a shock. Figure 1 plots the predicted impact of the 30% fall in stock-market levels as a deviation against the prior forecast. But as every horror fan knows the monster never dies. January Economic Summary in Graphs.
Here is a collection of 20 real estate and economic graphs from January ... New Home Sales in December Click on graph for larger image in new window. The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted). Notice the Red columns for 2008. This is the lowest sales for December since 1966. (NSA, 23 thousand new homes were sold in December 2008, 23 thousand were sold in December 1966). As the graph indicates, sales in 2008 are substantially worse than the previous years.
Housing Starts in December Total housing starts were at 550 thousand (SAAR) in December, by far the lowest level since the Census Bureau began tracking housing starts in 1959. Single-family starts were at 398 thousand in December; also the lowest level ever recorded (since 1959). Construction Spending in November This graph shows private residential and nonresidential construction spending since 1993. Nonresidential spending held up as builders completed projects.
Strip Mall Vacancy Rate December Retail Sales. Christina Romer Explains Stimulus Plan. FT.com | Willem Buiter’s Maverecon | Can the US economy afford a. Economic policy is based on a collection of half-truths. The nature of these half-truths changes occasionally. Economics as a scholarly discipline consists in the periodic rediscovery and refinement of old half-truths. Little progress has been made in the past century or so towards understanding how economic policy, rules, legislation and regulation influence economic fluctuations, financial stability, growth, poverty or inequality. We know that a few extreme approaches that have been tried yield lousy results – central planning, self-regulating financial markets – but we don’t know much that is constructive beyond that. The main uses of economics as a scholarly discipline are therefore negative or destructive – pointing out that certain things don’t make sense and won’t deliver the promised results. This blog post falls into that category.
Much bad policy advice derives from a misunderstanding of the short-run and long-run impacts of events and policies. Chart 1 usdebt.png Chart 2 Chart 3. Good news at last? The recession will be over sooner than you th. A key source of the today’s economic weakness is uncertainty that led firms to postpone investment and hiring decisions. This column, by the authors whose model forecast the recession as far back as June 2008, report that the key measures of uncertainty have dropped so rapidly that they believe growth will resume by mid-2009.
This means any additional economic stimulus has to be enacted quickly. Delaying to the summer may mean the economic medicine is administered just as the patient is leave the hospital. Many pundits (e.g. Krugman) are warning that a dire recession is in the offing. We also worried about a far worse outcome – Europe and the US slipping into another Great Depression due to damaging policy responses. Much like today, the Great Depression began with a stock-market crash and a melt-down of the financial system. In fact economic uncertainty is now dropping so rapidly that we believe growth will resume by mid-2009. Caballero, Ricardo (2008). Bloom, Nick (2008). Europe does not face deflation danger | vox - Research-based pol. Assessments of European price stability risks outright reversed in recent months.1 Until summer 2008, monetary policy was concerned with inflation pressures from surging commodity and energy prices.
Last month, facing possible recession, the European Central Bank (ECB) cut interest rates by an unprecedented 75 basis points. Falling commodity prices and weak demand have eased inflation. All major economic organisations found forecasting growth and inflation difficult and uncertain in 2008. While most observers expect both growth and inflation to significantly slow (i.e. a traditional recession), some argue that we are on the brink of deflation, while others argue that stagflation could be the true concern in the medium to long run.
Obviously these views yield very different ECB policy recommendations. Deflation previously captured significant attention during the last global recession. Any deflation danger is far from imminent, according to the authorities. Figure 1. Table 1. “There’s every risk of an overshoot” - Mozill. Because of the bloated monetary base there has been much concern recently about the supposed risk of future inflation. There are at least four important misconceptions associated with this issue, and I’ll try to address all four in this post. The first misconception is that it will be difficult to pull the excess reserves back out of circulation after the economy recovers and interest rates rise to a more normal level.
As Hall recently pointed out, if we continue to pay interest on reserves it would not be necessary to pull those reserves out of circulation in the future, just pay enough interest for banks to want to continue holding them. But for the moment let’s assume that’s not feasible. In the following quotation from the WSJ, Kenneth Rogoff expresses a widely held fear: “It’s very difficult to pump this money in and pull it out later,” says Kenneth Rogoff, a professor of economics at Harvard University. Why so little? I agree that we can’t rely on 4, and shouldn’t do 1. Tags: Banerji: The End of the Recession | Investing | Financial Articl. This post appeared yesterday on RealMoney. Click here for a free trial, and enjoy incisive commentary all day, every day. The end of this recession -- the most severe downturn since World War II -- is finally in sight. This is the clear message from Economic Cycle Research Institute's array of leading indices of the U.S. economy.
What are these indicators? One is the ECRI's U.S. Long Leading Index (USLLI), which has the longest average lead times of any U.S. leading index. Another is the Weekly Leading Index (WLI), which has a shorter lead over the business cycle but is very promptly available. The growth rate of the USLLI turned up in November 2008 and has now advanced for four straight months. Therefore, the economy is on the cusp of a growth rate cycle upturn -- i.e., a cyclical acceleration in economic growth. Not Just Green Shoots But so what? ECRI | News | Media Coverage. Unnamed. Employment Declines Sharply, Unemployment Rises. By Bill McBride on 1/09/2009 08:30:00 AM From the BLS: Nonfarm payroll employment declined sharply in December, and the unemployment rate rose from 6.8 to 7.2 percent, the Bureau of Labor Statistics of the U.S.
Department of Labor reported today. Payroll employment fell by 524,000 over the month and by 1.9 million over the last 4 months of 2008. Click on graph for larger image. This graph shows the unemployment rate and the year over year change in employment vs. recessions. Nonfarm payrolls decreased by 524,00 in December, and November payrolls were revised down to a loss of 584,000 jobs. The unemployment rate rose to 7.2 percent; the highest level since January 1993.
Year over year employment is now strongly negative (there were 2.6 million fewer Americans employed in Dec 2008 than in Dec 2007). Over 8 Million Part Time Workers. By Bill McBride on 1/09/2009 09:01:00 AM From the BLS report: In December, the number of persons who worked part time for economic reasons (some-times referred to as involuntary part-time workers) continued to increase, reaching 8.0 million. The number of such workers rose by 3.4 million over the past 12 months. This category includes persons who would like to work full time but were working part time because their hours had been cut back or because they were unable to find full-time jobs. Click on graph for larger image. Not only has the unemployment rate risen sharply to 7.2%, but the number of workers only able to find part time jobs (or have had their hours cut for economic reasons) is now over 8 million. Of course the U.S. population is significantly larger today (about 305 million) than in the early '80s (about 228 million) when the number of part time workers almost reached 7 million, but the rapid increase in part time workers is pretty stunning.
Boeing to Cut 4,500 Jobs. Q4 Preliminary Release and Re-thinking That "Massiv. The BEA released its preliminary numbers for 2008Q4 GDP. There was little good news in it, as many have observed. [0], [1], [2], [3] Consumption fell even further than first estimated. In an accounting sense, support from exports collapsed. Even the downward revision in inventories, which might have suggested a production rebound in this quarter, seems to incorporate more of a signal of further anticipated declines in demand, at least given the high inventory to sales ratios. And while declining imports add, in a mechanical sense, to output, it certainly hints at a sustained decrease in anticipated economic activity.
Figure 1: Real GDP growth (blue bars), and accounting contributions to GDP growth. This is “news”, insofar as the announcement came in below expectations (-6.2% vs. Figure 2: Log real GDP, preliminary release (thick blue), advance release (red), mean forecast from February 2009 WSJ survey (green), and potential GDP (black), all in Ch.2000$ SAAR. February Economic Summary in Graphs. Here is a collection of 20 real estate and economic graphs from February ... Click on graphs for larger image in new window. New Home Sales in January The first graph shows monthly new home sales (NSA - Not Seasonally Adjusted). Note the Red column for January 2009. This is the lowest sales for January since the Census Bureau started tracking sales in 1963.
From: Record Low New Home Sales in January Housing Starts in January Total housing starts were at 464 thousand (SAAR) in January, by far the lowest level since the Census Bureau began tracking housing starts in 1959. Single-family starts were at 347 thousand in January; also the lowest level ever recorded (since 1959). From: Housing Starts at Another Record Low Construction Spending in December This graph shows private residential and nonresidential construction spending since 1993.
Residential construction spending is still declining, and now nonresidential spending has peaked and will probably decline sharply over the next 18 months. U.S. Another Look at the Collapse of. A New Depression? The Lessons of the 1930s | Jeff Frankels Weblo. ECRI | News | Media Coverage - Mozilla Firefox. ECRI | News | Media Coverage - Mozilla Firefox. Roubini: End of Gloom?
ECRI | News | Media Coverage. Philly Fed: Manufacturing "contracted less seve. This shoot is definitely growing bigger and greener. Further progress for initial claims for unemploymen. Are We Turning Japanese?: The Balance Sheet: Online Only: The Ne. Will the credit crunch lead to recession? | vox - Research-based. Krugman Worries about L-Shaped Recession - Mozi.