April 30, 2010
The recession is over
That's the big take-away from today's report from the Bureau of Economic Analysis that the seasonally adjusted real value of the nation's production of goods and services grew at a 3.2% annual rate during the first quarter of 2010. But the details behind today's report suggest that the recovery so far remains pretty weak by historical standards.
The new GDP numbers allow us to update the Econbrowser Recession Indicator Index for the preceding quarter (2009:Q4), which now stands at 7.7%, a definitive signal that the recession is over. This number comes from a pattern recognition algorithm for dating business cycle expansions and contractions that waits one quarter for data revisions and clear trend identification before making an assessment. Following our predetermined rule, once a clear signal of a new business cycle phase has emerged, we use the full history of data available as of that date (April 30, 2010) to assign a most probable end date for the recession. These calculations determine that 2009:Q2 was the last quarter of the recession and that the expansion began with the third quarter of 2009.
Nevertheless, the details behind the 3.2% growth for 2010:Q1 are disappointing. Half of the growth came from the fact that firms were no longer drawing down inventories and have started to rebuild them slightly; real sales of final goods and services only increased at a 1.6% rate during the quarter, which would be an anemic rate in normal times and is particularly disappointing at this point in a recovery. And even 3.2% growth in GDP may not be enough to make progress in bringing the unemployment rate down.
Spending declines by state and local governments subtracted half a percent from the GDP annual growth rate, and residential housing another third of a percent. Nonresidential fixed investment and exports made modest positive contributions to first quarter growth, but I'd really like to be seeing them contribute much more.
But I suppose an optimist could see in all this the potential for much better numbers to come once the recovery gets on track. And even if growth of real final sales remains tepid, Inventory restocking could continue to make a big contribution to GDP growth the rest of this year.
As usual, check out the always-helpful survey of alternative viewpoints compiled by Phil Izzo.
Posted by James Hamilton at April 30, 2010 08:52 AMdigg this | reddit
Posted by: Anonymous at April 30, 2010 09:17 AM
I'm stumped by the numbers. What relevance does GDP have if so much of the economy is propped up by subsidies, buyouts of nonperforming loans and toxic paper, zero-rates, accounting fraud etc.
I'm not trying to be s downer, but, sheesh, maybe GDP isn't really the accurate monitor of the nation's economic health that we think it is.
Is that just sour grapes?
Posted by: Raskolnikov at April 30, 2010 10:14 AM
Now why do we still have ZIRP????
Posted by: Cedric Regula at April 30, 2010 10:18 AM
Two points -
1) The recession is over when NBER says it is. NBER has not said recession has ended. Quibbling about whether recession has ended is otherwise a waste of breath, as it amounts to little more than a restatement of whatever data one presents to argue that recession has ended.
2) NBER seems to have two reasons for delaying a declaration that recession has ended. One is that revisions can change the point at which the trough is identified, and identifying peaks and troughs is what the NBER cycle timing exercise is all about. The other is that the NBER seems to distinguish between to recessions close in time and a single long recession by whether all of its 4 non-GDP main indicators have turned up. If there is another slide in output before all 4 indicators have turned up, then the subsequent decline in output is lumped into the prior recession. If all measures grow before the next slump, then there are 2 recessions. So far, personal income ex-transfers is still in the ditch. If there is a near-term decline in output before income-x turns up, odds are it will be declared part of the recession that started back in December of 2007.
Posted by: kharris at April 30, 2010 10:33 AM
Well sure, the GDP isnt the only indicator, but it does show the overall trend in the economy, we ve seeb some improvement in consumer spending, a fall in weekly claims, so i guess just give it some time.
Posted by: Sedrak at April 30, 2010 10:42 AM
kharris: Whatever you want to say about my procedure, it certainly is not "little more than a restatement of whatever data one presents to argue that recession has ended." Instead it is a specific numerical algorithm that I elaborated in complete detail 5 years ago and announced at that time that it was the one I would be using. I have been reporting the outcome of that algorithm now continuously without interruption for 5 years. The algorithm says that the recession began in 2007:Q4 and ended in 2009:Q2, and that if we see declines in GDP from here, it is part of a new recession, not a continuation of the old.
By all means, though, you are certainly free to wait for the NBER to say the same thing before you accept it to be true.
Posted by: JDH at April 30, 2010 10:58 AM
The other point that should be made that the 3% real GDP increase in combination with the 1.8% increase in hours worked in the first quarter imply that productivity growth is slowing sharply.
Posted by: spencer at April 30, 2010 11:02 AM
Just as it took almost a year to admit we were in recession, it will take another to feel any turn around. I, as an economic lait person, do not feel anything but continued pain. The banks are still not lending, though my family and friends are now in better financial shape than when this all began. It is obvious, to me, that until the Government stops the spending and the printing presses, the banks will not take risks with the private sector. Why should they, when the goverment repayment if all this money is required, it will be coming from us. The banks never want to be second in line.
Watch for a bad secondary period of decline, followed by high taxes, high interest rates, high unemployment and the longest malaise in U.S. history.
Posted by: Steve at April 30, 2010 11:18 AM
Raskolnikov, no sour grapes for you!!! You're right to be bemused, if not confused.
Only a Keynesian could say with a straight face that gov't running a deficit of 16% of private GDP and gov't spending and household debt obligations at nearly 70% of private GDP to get -0.6% yoy private GDP growth is a "recovery" or early stage of an "expansion". LOL!!!
What happens to private GDP when the federal gov't stops giving realtors, mortgage brokers and servicers, auto dealers, appliance stores, and banksters hundreds and billions of dollars in direct transfers from future private economic activity and tax receipts?
Come on, folks!!! Good grief!!!
Posted by: Nemesis at April 30, 2010 11:19 AM
Growth will slow sharply in the 2nd half of the year as supports begin to get lifted, obviously those supports aren't the main reason for the +GDP reports as they would have happened anyway, but probably not at these levels.
The real problem is in the 2011-13 timeperiod when the next big(ger) debt deflation wave hits. I still don't think enough Americans understand how corporations have "hallowed" out this country. I don't think the government can finance enough borrowing to cover up the deflation in private debt either. Everything will collapse and nothing will help. Hence, people whining over taxes,spending,investment,deflation are missing the big picture. It doesn't matter. There is no magic bullet. No ideological fantasy that will help. The party is over and now we see if earth de-evolves into a Star Trekesque 21st century as I suspect.
Posted by: The Rage at April 30, 2010 11:47 AM
Nemesis, read my post, you don't get it. Without the "Federal" government doing that, the economy wouldn't even grow 2%, it is a hallow shell and nothing will support it. Nothing new is coming down the pike and once consumers fall into poverty, that demand is never coming back. Those businesses will never be again. Stop worrying about "public debt" and start worrying about private debt deflation which is the factor behind the public debt. Understand why private debt is allowed to run so high and understand who profits from deflation. It ain't here.
Stop whining about "fictional keynesian" and start worrying how are you going to survive. People like you will be called a traiter, internationalist and part of the cabal that pillaged America and destroyed its economy. Any "rebellion" you see now is typical kneejerk rebellion when things aren't clear. Not enough people have lost their job or healthcare and when liquidation makes the situation worse, reality and hatred will flow together into a reactionary/socialistic merging that will change the world forever.
These mergings only happen when a country has had a wealthy middle class. America of the pre-30's was a fairly poor country. Their reaction to a collapse was far different than their ancesters will be today who experienced a far greater degree of wealth.
Posted by: The Rage at April 30, 2010 12:03 PM
Dear Nemesis -
Did you get a tax cut? If you didn't, you must have been doing pretty well; if you did, you're welcome.
Posted by: JMan at April 30, 2010 12:16 PM
Rage, brother, you really missed my point, or I communicated poorly.
I am in virtual complete agreement with you. Debt/asset deflation is the proximate cause of the suicidal gov't borrowing and spending (and Fed printing). And Peak Oil has exacerbated the Peak Debt and debt-deflationary slide underway.
BTW, Japan's bank loans contracted 40-45% from '97-'98 to '03, and they are still down 35% from the point at which Japan's economy tipped into persistent price deflation and debt deflation at that point. From a demographic progression perspective, we are aligned in time with Japan was in '99-'00 and the US in 1938-39, 1892-93, and 1836-37. So, we are at the secondary reaction tipping pt. as was Japan in '99-'00.
[edited by JDH to remove inappropriate content]
Posted by: Nemesis at April 30, 2010 01:53 PM
JDH, as you well know, your index is precise and algorithmic - and most importantly it uses only GDP growth rate, with "non parametrics", "non-linear distributions", etc. On the other hand, the NBER uses 4 different measures to decide the start and end of recessions. Again, you know this. But to call your index a measure of recessions is a misuse of the English language because you do not consider all 4 measures. We are in unusual times when lots of statistics are many sigmas away from average. The best you can say is that if the other 3 measures behave statistically like history (which they have not - take a look at employment) then the recession is over, but since they have not behaved statistically like history, the jury is still out.
Posted by: Mike Laird at April 30, 2010 02:24 PM
Government spending must decrease, and/or taxes must go up.
Either option will be recessionary in the short run.
Posted by: Anonymous at April 30, 2010 08:11 PM
According to simple FAD model I am using (that is people observe what others are doing and react in relatively predictable ways) I have been using the US stocks will begin to drop and get volatile in September 2010, and it will last till July 2011. This may be the end of Lehman FAD,defined as lending going out of fashion. Minimum might be around March-May 2011 after double or triple dip in stock values.
The "causes" of this stock behavior (in fact , they are simultaneous adjustments by observation of millions if not billions of observers) will be either escalating sovereign debt problems or China bubble burst, or both. In case of first, we may enter another strong and dangerous FAD - global distrust into nations abilities to manage their finances and avoid defaults.
Posted by: Ivars at April 30, 2010 08:43 PM
Payments Less Transfers is your friend.
Just print baby, print.
Posted by: purple at May 1, 2010 02:23 AM
I'm of the opinion that taxes going up, within a sensible range, are almost irrelevant when it comes to economic strength.
Other factors, it seems to me, are far more important to any economic recovery we may, or may not, have.
Investment in productive activities usually follow a "theme." Right now all the available, game changing "themes" that would spur loan demand for productive activity require government policy support. And that's muted because of politics dominated by an ideology that prevents government investment in these themes. That would be "socialist," and wrong is the reaction to such government involvement.
So the game changing investment themes remain stillborn. And we thus have no real economic growth.
Tax increases don't play any role at all.
Posted by: Beezer at May 1, 2010 06:56 AM
I think some are challenging your "recession is over" call because the relevance is not clear. You say we still may not have enough growth to reduce the unemployment rate, and that real final sales is not what one would expect to see in a recovery. That is, you seem to question whether we are in a recovery.
If a recession doesn't end in a visible self-sustaining recovery, then has it ended?
Recessions are thought by economists to end naturally. Whatever shock made GDP shrink passes, the economy adapts, and growth resumes. So its understandable why one would want to define the end of a recession: it is the end of that adjustment process, the resumption of that natural trajectory of growth.
Except this recession, and possibly the last one, don't seem to fit that bill. In 2002 we emerged with near-ZIRP and "measured pace" monetary policy for years; once policy was "normalized", the economy tanked. Was growth during 2002-2007 "natural", or did it depend on stimulus whose very removal constituted a "shock"? Now we have ZIRP for the foreseeable future, and a lackluster recovery in final sales dependent on a decline in an already-low savings rate of an overlevered consumer. Can this "recovery" survive the normalization of monetary policy? I fear we will not actually find out, because policy, this time, will not reach what one would consider "normal".
Posted by: David Pearson at May 1, 2010 07:32 AM
Did you get a tax cut? Of course you did. All of us did.
Did you get a tax increase? Of course you did. All of us did.
Those in government loves to talk out of one side of their mouths.
Posted by: RicardoZ at May 1, 2010 11:37 AM
Real GDP is still below the peak set in the 2nd qtr 2008. So you add a little inflation and get nominal GDP which has passed its peak???
[edited by JDH]
Posted by: flow5 at May 2, 2010 05:06 PM
The NBER might wait until the annual GDP revisions in late July before declaring a once-and-for-all-time trough date. Their concern is not whether the economy was still in recession in 2009Q4 or 2010Q1, but whether 2009Q3 will be revised down to something near zero. If that happens, June or July 2009 will be less likely candidates for the trough date and September 2009 will be more likely.
For this reason, the NBER would perform a public service if it had a two-stage announcement: first let us know when it has identified a month or quarter that is definitely beyond the trough, in this case 2009Q4. The NBER could have told us this at the end of January 2010. Later tell us the exact month of the trough, which is still likely to be July 2009, but is not certain yet.
Posted by: MDueker at May 2, 2010 10:43 PM
I'm not saying you are wrong. I don't see why you care. I don't see what earthly good it does to plant a flag in the calendar and declare that you have identified the trough in output. Does YOUR flag drive policy? Does it change outcomes?
Right or wrong, you are wasting effort on this exercies. It is, of course, your effort to waste.
Posted by: kharris at May 3, 2010 05:58 AM
The recession is not over, especially for the 20% who are unemployed and the 30% of unemployed who earn $20,000 or less.
The recession is just beginning and we had some "recoveries" during the Great Depression and then it went back down.
The amount of money and inflated money supply throwing at the markets is of course going to raise the markets. Besides, foreign markets are outperforming the U.S. on an astronomical scale!
Besides, if the recession is over, we're not going to have any money to bailout companies or spend when we have the next recession. We're $13 trillion in debt and $107 trillion in unfunded liabilities and expenditures!
Eventually we're going to be like running with the bulls when we leave the dollar!
Posted by: Andrew at May 3, 2010 10:39 AM
The recession is likely not over. We've had a temporary pop in GDP because of $1.6 trillion of money printing by the Federal reserve and an almost equal amount of money given to the public in federal govt transfer payments, which thus far has all been spent and then some. As of now, the money printing is over. The federal govt continues to prop up the economy with transfer payments via a huge budget deficit. Manufacturers have rebuilt some inventories. Sales have been up. But yet private employment continues to decline; note that health care employment has been up 900k this recession only because of increased govt deficit spending/transfer payments. Personal income ex-transfer payments is at recession lows. Credit continues to contract. Savings rates continue to move down as money markets are getting withdrawn for spending money. Manufacturers are ramping up production mostly off-shore. Now imports are increasing faster than exports. Exports may get worse going forward as the dollar has strengthened, Europe is very weak, and the Chinese stimulus is over and their central bank is trying to put a half to their real estate boom. The non-residential real estate market continues to contract rapidly. REsidential real estate will remain in the doldrums for years. The govt will finally start foreclosing on houses so people no longer get free rent. State and local governments continue to cut spending and fire workers. etc. etc All in all, it looks like this recovery can only be sustained with ever increasing US budget deficits. But even then, we're only a few failed bond auctions away from a meltdown.
Posted by: Lamont at May 3, 2010 04:06 PM
These last two comments reflect one of the concerns that prevent the NBER from declaring an end to recession. If there is a second recessionary dip before all the main indicators used by NBER recover, then NBER is likely to declare that the recession did not end when GDP growth picked up. Some allowance is likely to be made, however, if the string of quarters showing GDP growth gets much longer, even if not all the NBER tracking measures rise.
Posted by: kharris at May 4, 2010 04:37 AM