March 10, 2008
Pretty Darn Good...(An Update on "Two Recession Bush Presidency?")
Two months ago, I posed the question "What Are the Prospects for a Two Recession Bush Presidency?" I think the answer is indeed "pretty good", given the recent data.
That being said, I think it might be useful to review the latest observations for the key series scrutinized by the NBER Business Cycle Dating Committee (BCDC): (i) personal income less transfers, (ii) nonfarm payroll employment, (iii) industrial production, and (iv) manufacturing and trade sales. In addition, the BCDC also pays attention to (v) Macroeconomic Advisers' GDP series (see BCDC FAQs here)
Figure 1: Log personal income less transfers in 2000Ch.$ (blue) and log nonfarm payroll employment. Real personal income calculated by subtracting off transfers from personal income, and deflating by the personal consumption expenditure deflator. Source: BEA and St. Louis Fed FRED II, accessed 8 March 2008.
Figure 2: Log industrial production (blue) and log manufacturing and trade sales, in Ch.2000$. Source: Federal Reserve Board via St. Louis Fed FRED II, and BEA, accessed 8 March 2008.
Figure 3: Monthly real GDP, flash estimate, at SAAR. Source: e-forecasting.com, release of March 7, 2008.
Summing up, all the core series save industrial production could plausibly be argued to have peaked (payroll employment is a bit hard to tell, but detail is here). While industrial production looks like it has plateaued, it's important to recall that this series includes utilities (affect by the extreme winter); manufacturing production is clearly below its most recent peak in mid-2007. GDP looks like it has plateaued, rather than declined, but we know from previous experience that GDP tends to be revised down around turning points , .
So, I'll echo Jim's assessment: too soon to be sure, but chances are pretty darn good that we that we're into the second recession of the G.W. Bush presidency.
It seems to me the next question of interest is whether the recession is likely to be short or long. I keep on seeing predictions of a short V-shaped recession , , . Most macro forecasts do predict a resurgence in 2008H2 (just as CEA Chair Lazear alluded to in his last press conference). For instance, today's Deutsche Bank forecast is for (-0.5%) and (-0.3%) in Q1 and Q2, respectively, with growth spiking in Q3 at 2.6% before settling at 0.9% in Q4. Still, with oil and ag commodity prices stubbornly high, the extent of the financial system turmoil uncertain, and the less-than optimally constructed fiscal stimulus limited to only one percent of GDP, I don't think the 2008H2 acceleration will be a sustained one.
Late addition: Slowdown in U.S. Will Be Deeper, Recovery Weaker, Survey Shows, Bloomberg (March 11).
Posted by Menzie Chinn at March 10, 2008 09:01 PMdigg this | reddit
I'm don't think the 2008H2 acceleration will be a sustained one.
While the financial market turmoil and dysfunctional credit markets are significant wild cards, interest rates are so low (and could be 2.25% this week!) that you have to think that growth later this year and into '09 should be positive, if not strong.
Posted by: Buzzcut at March 11, 2008 06:51 AM
The Macroeconomic Advisers monthly real GDP index rose to a record high in December. It fell in October but rebounded in November and December.
Preliminary indicators suggest it rose again in January.
I get a sense that some academic economists are actually rooting for a recession, a way of punishing the country for having elected Bush.
If a recession occurs, many will chortle about Bush incompetence. If a recession does not occur, will Bush be congratulated on his crisis management skills?
Posted by: B.H. at March 11, 2008 08:30 AM
I get a sense that some academic economists are actually rooting for a recession, a way of punishing the country for having elected Bush.
I have no idea where you got that sense from.
Posted by: Buzzcut at March 11, 2008 08:44 AM
I see a protracted downturn, and I do not see how growth can return in the short/medium-term.
The debt service and financial obligations ratios are ugly
and will only get worse as employment and disposable personal income continues to fall.
Additionally, we are seeing return of the risk premium; Moody's BAA-AAA has moved from 0.79% in Oct. '07 to 1.31% last month:
High obligations, falling employment and incomes, rising interest rates --> protracted downturn.
Posted by: jg at March 11, 2008 08:50 AM
Calling it a two-recession Bush Presidency is disingenuous, because the first recession began after Bush had been in office just 6 weeks, and thus was a byproduct of Clinton's policies. The stock market had already heavily crashed before Bush entered the WH.
Posted by: GK at March 11, 2008 10:20 AM
That business about "rooting for recession" is often an effort to shame the messenger into shutting up. It is a partial measure of how well this effort worked that you can now hear it from people who aren't in on the game. They have heard this accusation from others and taken it up, without realizing it came about as a way to end discussion of recession risks.
Historically, it would be unusual to have a credit crunch of the size we are experiencing without recession. The same can be said for the fall in home sales, housing starts and now in payroll employment. Noticing this history in the Karl Rove era is apparently a political act, rather than an analytic act.
Posted by: kharris at March 11, 2008 10:53 AM
"If a recession occurs, many will chortle about Bush incompetence. If a recession does not occur, will Bush be congratulated on his crisis management skills?"
Uh no, if a recession does NOT occur (unlikely) it would be in spite of him.
Jimmy Carter's economy outperformed 7 years of Bush.
Posted by: me at March 11, 2008 11:58 AM
B.H. and Buzzcut: What you assert may be the case; however, if you click on the URL for Bloomberg article, you will see lots of "nonacademic" (read business/financial sector) economists apparently "rooting for a recession" -- approximately fifty percent of them.
Posted by: Menzie Chinn at March 11, 2008 12:08 PM
"Jimmy Carter's economy outperformed 7 years of Bush."
Dead wrong. It is sad when an entire party's supporters have no interest in inconvenient facts.
The average unemployment rate under GWB's 7 years (5.2%) has been lower than even under Bill Clinton's entire term (5.3%). Period. Check out the facts from the Bureau of Labor Statistics (www.bls.gov).
Productivity growth under GWB has been higher than in the Clinton years.
Carter does not even merit comparison. That is part of the reason he didn't even win a second term.
Please educate yourself on basic economic statistics.
Posted by: GK at March 11, 2008 12:21 PM
Without looking at the numbers, I would guess that economic performance measured in per capita real wealth, the Carter period looks pretty good compared to the social wealth losses inflicted during the current Bush II period.
And I say this without including the benefits that Carter-negotiated peace treaties provided both the US and Israel as well as the rest of the globe.
Posted by: E. Poole at March 11, 2008 01:32 PM
"per capita real wealth, the Carter period looks pretty good compared to the social wealth losses inflicted during the current Bush II period."
I see that you have no numbers to back that up.
Also, you didn't deny the unemployment rate figures I provided that show GWB to have performed better than Clinton. Thus, you appear to have conceded this point.
Carter's own metric, the 'misery index', has been better under GWB than under any President.
"And I say this without including the benefits that Carter-negotiated peace treaties provided both the US and Israel as well as the rest of the globe."
That is so ignorant that it almost seems like it is from The Onion. Carter is the reason we still have trouble with Iran today. Carter still can't grasp the difference between democracies and dictatorships. Carter also thinks Israel and apartheid South Africa are morally equivalent, as this was the title of his book.
If you disagree, consider that after the disaster of Jimmah, Democrats NEVER again got 50% of the popular vote in SEVEN attempts. The GOP, on the other hand, got above 50% 4 times during this period (1980, 84, 88, 2004).
Carter did more to ensure a generation of GOP dominance than Reagan, Rove, or Limbaugh ever could. Again, I have presented indisputable facts to prove this.
I don't expect to change your 'mind', there isn't enough to change.
Posted by: GK at March 11, 2008 01:51 PM
This, again, is why after Carter, the Democrats never again won 50% of the popular vote in SEVEN subsequent Presidential elections, while the GOP did so 4 times (1980, 84, 88, 2004).
Carter did more to help the GOP than Reagan + Gingrich + Limbaugh + Rove combined.
Posted by: GK at March 11, 2008 02:32 PM
Actually it looks like two Democrat recessions. Recession one began with the Republican House giving Clinton his way and was only reversed with the Rep. Bill Thomas tax cuts under Bush. Now the Democrats control the House and Senate and once again they are reversing the pro-growth policies and driving us into recession.
Menzie, I hate to point out the obvious but constitutionally the House is responsible for spending and taxation.
Posted by: DickF at March 11, 2008 03:25 PM
GK, I don't mind the personal digs and insults; no violence please.
My guess is that the relative value of the US dollar will make a big difference in per capita wealth comparisons between the Carter and Bush II period. My point of reference is the globe-trotting American. That is the nasty personal bias underpinning my admittedly feeble argument.
You and I are going to have to agree to disagree. The Bush II regime has done hard-to-repair damage to the global social capital that America and Americans could once so easily tap into. US hegemony hurts; the security and welfare of US allies and friends potentially hurt.
Suppose I'm surrounded by a bunch of reasonably sharp economists with graduate degrees. Being an annoying neo-liberal wonk with classical liberal views on security and prosperity, I ask them, which society pays the highest economic cost on a per capita basis for the vision of a Greater Israel: Occupied Palestine, Israel or the USA?
If you know how some demented economists like to torture each other and their students, you know the answer. It is Israel. The basis for the comparison is one of opportunity cost. The existing relatively high levels of human and social capital along with well-developed infrastructure mean that Israel would enjoy the greatest immediate growth potential in the event that sustainable peace broke out.
I understand that there is a high willingness to pay in own-citizen and ally-citizen blood for incremental religious monuments, arid land and (sometimes) water on part of the majority of Americans and Israelis for land taken in 67. Canada lends critical support to Israel through a freer trade agreement and by allowing Canadian Jews to emmigrate to the Occupied Palestinian Territories without raising a fuss.
America's and Israel's strong friendship is worth preserving and fostering but I would like to point out that the USA is ultimately the final guarantor of Israel's security. Care should be taken to avoid unduly weakening the USA for the sake of costly colonial conquests of questionable value.
Posted by: E. Poole at March 11, 2008 03:53 PM
The University of Nevada-Reno economics professor also uncovered the following while conducting the economic comparison between Republican and Democratic presidential administrations from 1949 to 2005:
Unemployment Rate- Republicans 6.0%, Democrats 5.2%
Change In Unemployment Rate- Republicans +0.3%, Democrats -0.4%
Growth of Multifactor Productivity- Republicans 0.9%, Democrats 1.7%
Corporate Profits (share of GDP)- Republicans 8.8%, Democrats 10.2%
Real Value of Dow Jones Index- Republicans 4.3%, Democrats 5.4%
Real Weekly Earnings- Republicans 0.3%, Democrats 1.0%
CPI Inflation Rate- Republicans 3.8%, Democrats 3.8%
"But we can reasonably conclude that these government statistics provide evidence that directly contradicts the argument that the economy does better on average under Republican administrations. With lagged effects and other causes considered, the difference may be insignificant, but the economy may actually perform worse under Republicans."
Posted by: flatlander at March 11, 2008 04:08 PM
A couple of Republican presidents presided over key advances in the international arena that must have had tremendous positive benefits for the US economy.
Empirically establishing a link is another matter.
Posted by: E. Poole at March 11, 2008 10:13 PM
I would add to Flatlander's post the fact that PGL has done yeoman's work comparing GOP to Dem economies and the claims that the Carter economy was worse than the Bush economy are simply nonsense. But PGL has done a lot more than link a Kleiman reproduction of a Dean Baker post. A list of numerous measures of presidencies is here
One can only shake one's head sadly at the laughable claim that the House is solely responsible for the budget. While it's true that officially the process begins there, the President has enormous power, particularly when the opposition party doesn't control both houses of Congress by strong margins.
You have the numbers you demanded, fellas. I hope you can eat that much crow.
Posted by: Charles at March 11, 2008 11:42 PM
This is so sad. Not one claim being made here is new. Not one rebuttal is new. Do you guys just wander from place to place, making already debunked claims in what you believe to be new places? The way honest discussion goes is to put your ideas out, with no weasel-words that provide an escape from admission of error, and see what others have to say.
J.S. Mill has a good little bit on wisdom, in which he says the only way anyone ever gained wisdom is to put their ideas out where others can respond to them, listen to what others say and then take what they hear fully into account. This my-dog's-better-than-your-dog style of debate is just about as far from that as you can get. Grow up. Admit when the argument you made last week didn't stand up to scrutiny and move on. Or remain a dishonest hack.
Posted by: kharris at March 12, 2008 05:13 AM
What a dumb headline !
Posted by: Mano Appapillai at March 12, 2008 11:14 AM
I see that not one of the leftists here has disputed that the unemployment rate under GWB was actually lower than under Clinton. They have thus tacitly conceded this point.
Carter is not even worth mentioning. All I can say that is after Jimmah, the Democrats never won more than 50% of the popular vote in SEVEN Presidential elections, while the GOP achieved this feat 4 times in the same period (1980, 1984, 1988, 2004).
Carter did more to ensure a generation of
In terms of misery index, GWB and Clinton are about the same, while Carter is the worst of all.
Facts are facts, even if leftists can't accept them.
Posted by: GK at March 12, 2008 11:27 AM
GK says, "I see that not one of the leftists here has disputed that the unemployment rate under GWB was actually lower than under Clinton."
This is both false and disingenuous, GK.
Any fair-minded person will ask, "What was the unemployment rate when each man entered/left office? Were the criteria for measuring unemployment the same? How much did he add/subtract from the debt in creating those jobs?" The question, "was unemployment higher?" is simply disingenuous.
GW Bush began his term with a very low unemployment rate of 4.0%, and has added very few jobs, leaving unemployment higher now than when he began his term. Many of those are government, not private sector jobs. This is not a good record on unemployment.
In 1976, the last year before Carter, unemployment was 7.7%. In 1980, when he left, it was 7.1%. In other words, Carter left office with employment in better condition than when he took office.
And this makes the position you have taken fundamentally dishonest. To deny you any pale penumbra in which to hide, here is a specific answer to your claim that Carter was bad on unemployment. The ranking is done by that notorious left-wing magazine, Forbes. It ranks unemployment from best to worst as follows: Kennedy, Clinton, Johnson, Reagan, Carter, Truman, GHW Bush, Nixon, Eisenhower, Ford.
So, Carter is about average, and 4 of the top 5 in terms of reducing unemployment are Democrats. Where is Dubya? Well, we won't have the ranking until he's done destroying the American economy. But we will know that however good or bad that ranking is, he will have borrowed many trillions of dollars to do so, compromising the future of this country.
You weren't being evaded.
You were being ignored.
Posted by: Charles at March 12, 2008 01:26 PM
So GK I'm guessing that you've accepted everything flatlander and others have said? Or can you not hear over the sound of your own shouting?
Posted by: benny lava at March 12, 2008 01:30 PM
GK, your argument about unemployment rates totally disregards the effects of demographics. Back then the baby boomers were just entering the workforce and all of a sudden the terms women and labor could be used in the same sentence without discussing childbirth. Take a look at the year over year growth rates in employment. Much higher under JC than GWB. Look at the change in the labor force participation rate or the employment to population ratio. The unemployment rate is structurally lower today than it was back then. Not to get to partisan about it, it would note that to a lesser degree Clinton benefited from the demographic changes, and RR was also handicaped by those changes. The unemployment rate is a highly misleading metric due to the demographic factors.
Posted by: Dirk van Dijk at March 12, 2008 03:04 PM
Average unemployment rate, especially over 8 years, is the metric. If Bush started with a rate at nearly the lowest possible (4.0%), it would be nearly impossible to go lower.
Still, you don't dispute that the average unemployment rate under GWB was better than under Clinton. Thus, you have ceded this point.
You have ceded the misery index point as well.
Also, I see the leftists cowering in agony from the fact that the disaster of Jimmah Cahtah, that prevented Democrats from winning 50% of the Pop. vote in SEVEN attempts, vs. the GOP doing so 4 times in the same period (1980, 84, 88, 2004).
That is a crushing disparity.
Carter did more to ensure a 28-year era of GOP dominance than the efforts of Reagan + Gingrich + Limbaugh + Rove combined. I suppose I should be grateful to Carter in a way.
"You weren't being evaded. You were being ignored. "
Translation : When Charles is presented with facts that puncture his dogma, he is stumped and ashamed.
Dirk said :
"GK, your argument about unemployment rates totally disregards the effects of demographics. "
That actually makes Bush II look better. He has been President in an era where workforce growth is much slower than it was from 1970-2000, hence the number of jobs created during his Presidency was actually good when considering the slowing in labor force growth.
The same applies to GDP growth. Carter had high GDP growth for the same reason that GWB and the post-Bush successor will have low GDP growth.
Posted by: GK at March 12, 2008 05:24 PM
GK says, "Thus, you have ceded this point."
No, actually, I haven't. I've merely pointed out the moral bankruptcy of the way you argue your point.
The reality is that both inflation and unemployment are measured differently in the 1970s than they are now. It is entirely possible that the so-called "misery index" now is higher than it was under Carter.
Or maybe not. Basically, who cares about tortured factoids of the kind you use to make your case?
What is clear is that gas and food prices are exploding, that millions of people have given up looking for work, that many millions more have seen their salaries decline. What is clear is that the popularity of George W. Bush is at the lowest sustained levels measured for any president, except for Nixon right around the time he fled impeachment. Even less popular than Carter at his very worst moment
And Carter? People love him and recognize him as a tremendous humanitarian.
With luck, George W. Bush's popularity numbers will mean that Republicans don't score higher than 50% in the presidential for the next 30 years.
Posted by: Charles at March 12, 2008 09:46 PM
"It is entirely possible that the so-called "misery index" now is higher than it was under Carter. "
You are just guessing. You have no date, while I have presented data from the Bureau of Labor Statistics.
You have been crushed on this point. The unemployment rate under Bush has been better than under Clinton, period. Carter is not even in the league.
"And Carter? People love him and recognize him as a tremendous humanitarian. "
I don't know what planet you are from, but it is not this one. Again, after the disaster of Carter, Democrats failed to win 50% of the vote in SEVEN attempts, vs. the GOP winning it 4 times.
The GOP won 5 of the 7 elections after Carter. Democrats only won 2. That is a huge gap.
In fact, despite Bush's troubles now, McCain is polling rather well against Obama, making the 2008 outcome far from settled. That Democrats are not overwhelmingly ahead even now is a stunning indication of their inherent weakness, even 28 years after Carter.
Posted by: GK at March 13, 2008 12:33 PM
OK, just to remind folks -- the original post was about the prospects for a recession beginning before January 2009, and the duration/depth, not one on economic history.
Posted by: Menzie Chinn at March 13, 2008 12:55 PM
Menzie, hopefully your blog is always about promoting the honest use of economic statistics and exposing the fallacious use.
But I'll take the hint and leave the trash where it lays.
Posted by: Charles at March 13, 2008 07:54 PM
Who owns this recession? There is the clear and obvious connection between the current market turmoil and a Democratic budget that projects massive tax increases, e.g. on investment (cap gain rate from 15 to 28%) by letting bush tax cuts lapse. Their budget blueprint passed this week. After 15 months of Democrats railing against business, enacting 'windfall profits taxes' and declaring the end of the Bush era taxes and a future of higher tax rates, this new Congress has injected enough uncertainty and prospects for reduced future returns to harm investment outlooks and crimp economic growth.
The 1981 to 2006 policy of sound money and incentivizing through lower tax rates seems to be no more. Democrats are bound and determined to raise marginal tax rates post-Bush. With Pelosi, Reid, Bernake, we have looser money and higher taxes. Uncle Ben cant flood money into the system to make up for the contractionary effect of the Democrat signal on taxes, all it does is raise inflationary expectations. Its a toxic brew for stagflation. Whoever was praising Jimmy Carter should enjoy the reprise of the 1970s economy. ugh.
Posted by: Patrick at March 15, 2008 10:32 PM
Oh, the first recession was, of coarse clinton's fault even though there is evidence that the downturn began with the Enron Hijacking of California's electric market. This worthless President and his dutiful patrons won't take responsibility for anything! Who will they find to blame for the current down turn? President "PASS THE BUCK" is what I call him. I would'nt give a nickle for him. Good riddance to the "President" who wasn't good at anything!!!!
Posted by: rc at April 3, 2008 05:12 AM