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Tilting at Windmills

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February 1, 2008
By: Kevin Drum

RECESSION POOL....Anybody want to start a pool? Here's the bet: when NBER eventually gets around to dating the 2008 recession, when will they decide it started? My money is on December 2007.

And when will they date the end? I'd guess March 2009.

Alternatively, we're not in a recession now and we're not going to fall into one. What's your guess?

Kevin Drum 12:51 PM Permalink | Trackbacks | Comments (42)

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Since the number of new jobs was revised significantly upward for December, it is very unlikely that a recession began then. It is still too soon to say whether there will even be a recession this year.

Posted by: s gerber on February 1, 2008 at 12:52 PM | PERMALINK

KD

With you on the December start. If you are correct on the duration, it is going to be ugly indeed. I suspect the Fed "helicoptering" liquidity into the economy is going to shorten the depth and length. As an asset manager, my question is "where will the next bubble arise?"

Posted by: martin on February 1, 2008 at 12:54 PM | PERMALINK

Recessions are only defined by the quarters in which the economy actually contracts, not when we recover to pre-recession economic levels. So NBER tends to make recessions sound short. I'll guess that it starts 4th quarter 2007 and last three quarters, so ending July 2008.

Posted by: LLamura on February 1, 2008 at 12:54 PM | PERMALINK

Between November 2007, and January 2008.

Just kidding, I say November.

Posted by: Boorring on February 1, 2008 at 12:56 PM | PERMALINK

January 2001 to Decemeber 2008

Posted by: Juanita de Talmas on February 1, 2008 at 1:02 PM | PERMALINK

I predict a double-dipper. I'll take Dec. 07-June 08 for the first, and Jan. 09-March 10 for the second

Posted by: SocraticGadfly on February 1, 2008 at 1:04 PM | PERMALINK

Here's the bet: when NBER eventually gets around to dating the 2008 recession, when will they decide it started? My money is on December 2007.

Kevin, I wouldn't be so quick to say we're in a recession right now. As Mark Perry points out, claims of unemployment checks are pretty low, indicating the economy is still pretty strong.

mjperry.blogspot.com/2008/01/we-are-not-in-recession.html

"At the onset of each of the last four recessions (1980, 1981, 1990 and 2001), initial claims for unemployment benefits were above the average of 353,000 (from 1967), and in most cases, way above average. The two most recent reports of 301,000 claims (week ending January 19) and 302,000 claims (week ending January 12) suggest that the labor market is healthy and resilient, not weak and anemic."

Posted by: Al on February 1, 2008 at 1:15 PM | PERMALINK

I don't advertise for bankruptcy cases and for a long time they were few and far between. The last couple of months I have been fielding call after call from debtors losing their homes or contemplating bankruptcy. Nearly all of my calls are from middle class wage earners making around or way above the median income. Most of them are fearful they are about to lose their jobs.

My daughter works at the local mall. Sales were not nearly as good as anticipated during the last Christmas season.

If we aren't in a recession, it sure feels like one.

Posted by: corpus juris on February 1, 2008 at 1:16 PM | PERMALINK

December sounds right to me (and to Bill Gross, bond market guru, as well). Hope it doesn't last as long as you forecast, but I can't honestly say it won't.

Posted by: Kit Stolz on February 1, 2008 at 1:26 PM | PERMALINK

The recession began in Feb. 2006, when single-family home sales declined 20% in February, year-over-year. The economy will still be in recession through the November 2012 election, if a Democrat wins the presidency in 2008.

The oil companies and other large corporations will do to the new Democratic president what they did to Chavez in Venezuela. Combined with Bernanke's shooting his Fed wad and the trillions in debt W. Bush borrowed, the next Democratic president will have little monetary and fiscal policies available to fix anything, especially with the active opposition of private capital. With the predicitons that world wide trade will see renewed restrictions, we are heading into the Big One. Americans will be very hard hit. Americans have savings deposits guaranteed, but they have no savings. Their mortgaged homes will have no value and they will be unable to sell them. America will become a land of homeless people and boarded up houses.

A long recession will enable Mayor Giuliani to beomce president in 2012, though.

Posted by: Brojo on February 1, 2008 at 1:27 PM | PERMALINK

I'd say the recession started somewhere between Bill Clinton destroying our nation's innocence, and Al Gore putting us through a nightmarish month without a president.

Posted by: Freetard on February 1, 2008 at 1:34 PM | PERMALINK

Begins June-Aug 2008, ends in Jan-March 2009.

Though, I must admit that I am a bit bothered by being in agreement with so many that a recession is coming this year.

Posted by: Yancey Ward on February 1, 2008 at 1:40 PM | PERMALINK

I'd enter the pool, except I'm broke...

Posted by: Buford on February 1, 2008 at 1:46 PM | PERMALINK

Just a reminder: since the Civil War, no incumbent party has ever held onto the White House if there was a recession during the campaign season.

Posted by: jimBOB on February 1, 2008 at 1:48 PM | PERMALINK

Al, I guess you missed the unemployment claims report from yesterday. The number soared to 375K.

I'll agree with Kevin's prediction, and I also agree with the commenter who predicted a double dip recession. This will a long, drawn out slump...

Posted by: Detroit Dan on February 1, 2008 at 1:55 PM | PERMALINK

I think it has to be at least 6 months long to count as a recession

Posted by: frank on February 1, 2008 at 1:57 PM | PERMALINK

The consensus among most is December 2007 for the first month, but recessions are defined by two+ consecutive *quarters* of negative growth. I'm going to say all four quarters of 2008 will be negative, with a very anemic recovery in 2009 (maybe 2Q). We're way too dependent on consumption in our economy (72%) and consumption fuel inventories sure look bleak with no home equity to tap. I don't see any positive growth in GDP until the housing price free-fall hits bottom.

Posted by: Doc at the Radar Station on February 1, 2008 at 2:03 PM | PERMALINK

My guess is that George W. Bush is the worst president in American history.

Posted by: The Conservative Deflator on February 1, 2008 at 2:30 PM | PERMALINK

Recession Start: December 2007
End: 4Q09?

I think it is going to be long, hard, and ugly. We have serious excesses due to Greenspan's housing bubble -- that's not going to get worked out overnight. And the **** subprime paper hasn't really settled yet.

Worse, Bernanke's recent panic moves will put off the worst for a short while, but it will still hit -- harder, now, and for a longer period. And to top that off, reckless jiggering of the prime rate means inflation starts rearing its ugly head even more, come March or April of 2008.

Posted by: Cathexis on February 1, 2008 at 2:32 PM | PERMALINK

PS: Conservative Deflator ... that's not a guess, it is a statement of obvious, historical fact. ;-D

Posted by: Cathexis on February 1, 2008 at 2:34 PM | PERMALINK

The stock market doesn't think we're entering a recession. The Dow Jones Industrial Average is now rising after a 10% correction, which is not a big deal after years of growth.

http://finance.yahoo.com/q/bc?s=%5EDJI&t=2y&l=on&z=m&q=l&c=

Posted by: ex-liberal on February 1, 2008 at 2:40 PM | PERMALINK

Traditionally don't recessions end when people are put to work to replenish depleted inventories. The reemployed workers start buying again fueling the recovery in sort of a positive feed back process. Since we don't actually build anything in America anymore, how are we going to get out of the recession?

Posted by: corpus juris on February 1, 2008 at 2:48 PM | PERMALINK
As an asset manager, my question is "where will the next bubble arise?"
I'm hoping we're all bubbled-out at least for another half-decade.

Posted by: Bill Arnold on February 1, 2008 at 3:06 PM | PERMALINK

The stock market is a lagging indicator, as is employment.

Posted by: Alan Greenscam on February 1, 2008 at 3:29 PM | PERMALINK

"The stock market doesn't think we're entering a recession. "

They didn't think so in 1929, either. Or just before most of the recessions since then.

Posted by: CN on February 1, 2008 at 4:17 PM | PERMALINK

The stock market doesn't think we're entering a recession. The Dow Jones Industrial Average is now rising after a 10% correction, which is not a big deal after years of growth.

Actually the difference between Octobers high and the January low was more like a 20% correction. Same goes for the S&P 500 and DJW 2000, which are broader based indexes and more reliable in terms of what they indicate about the economy. Currently the markets are still down about 15 percent from last quarter's high point. What's really scary is that, if you measure the market in constant 2007 Euros instead of constant 2007 dollars, the markets are actually considerably lower today than when Bush took office in January of 2001, something like 30% off. Yep, Bush has saved us from our long national nightmare of peace and prosperity.

As for when the recession starts and ends, that is a tough call. The credit crunch in the US is going to reverberate throughout the known economic world and I tend to think the more cogent question is when will people stop worrying about the rec and start worrying about the depr?

Posted by: majun on February 1, 2008 at 4:24 PM | PERMALINK

I continue to feel that this economic downturn will be the longest and most severe since The Great Depression ended during WW2. Sales are lagging but the biggest concern is the lack of living-wage jobs. Too many families need 3 or 4 jobs just to hang on.

Posted by: Chief on February 1, 2008 at 5:20 PM | PERMALINK

Traditionally don't recessions end when people are put to work to replenish depleted inventories. The reemployed workers start buying again fueling the recovery in sort of a positive feed back process. Since we don't actually build anything in America anymore, how are we going to get out of the recession? -corpus juris

IF the Fed can keep insurers and banks from collapsing while all of this bad paper gets worked through and then a bottom is reached with respect to housing prices then some confidence should begin to return and then we'll be through this most dangerous psychological phase. Some people think that could happen as early as summer 2008, but the sooner it happens the better because there isn't much leverage left with interest rates given the amount of inflation. As far as inventories go, it isn't manufacturing, but housing where the overstocked situation is. Even though prices may bottom this year, the large unsold inventory of houses will take a while to whittle down.

Posted by: Doc at the Radar Station on February 1, 2008 at 5:32 PM | PERMALINK

There will never be another recession thanks to Bush's leadership! The economy will only grow to greater and greater infinities!

Posted by: Conservatroll on February 1, 2008 at 6:14 PM | PERMALINK

Is the "overstock" in housing an absolute excess of housing (to much housing stock) or is it that people can't afford to continue paying inflated prices?

Are we looking at a recovery with a way up, or are we looking to reach an stable economy some place below the current standard? In short can people expect a permanent decline in their standard of living?

Posted by: corpus juris on February 1, 2008 at 6:15 PM | PERMALINK

This looming recession was preordained in the election of Geo Bush. Think of who is making the money since that time and will contimue to do so.
Oil, Insurance, Drugs and Arms. He was the happy face those industries wanted elected to deliver on rerouting the money to their coffers. Look at the legislation, the war, the corruption and law breaking. Geo Bush will go back to Crawford, fill up a glass of JDaniels, put his feet up and laugh. He will feel very successful at having "delivered".We have been suckered like never before.

Posted by: fillphil on February 1, 2008 at 6:42 PM | PERMALINK

corpus juris - The number of housing units isn't the problem; the number of overpriced and underfunded housing units is. The 30 year squeeze on the middle class (economically speaking) has left them with little or no resources save the equity in their homes. If the house was overvalued when purchased, the purchaser will have little or no equity (depending on how long payments have been made) and since home equity has replaced savings accounts as a financial cushion, if there is a downturn in the value of housing the results are the same as if the homeowner had lost all of his/her savings because of a bank failure or stock market collapse.
Factually we have been in a recession since the late summer of 2007. And we won't see the end until the housing market finally bottoms out, probably in early 2009. How long the recovery takes will depend on how quickly the next administration can put the national finances in order.

Posted by: Doug on February 1, 2008 at 6:52 PM | PERMALINK

Start date: December '07

End date: depends on what happens with oil prices. If supplies cannot keep up with world wide demand, and prices continue to escalate, we could see stagflation and a repeat of the 1977-1982 period. I'm not optimistic.

Posted by: nathan on February 1, 2008 at 7:13 PM | PERMALINK

All of the pressures on the economy are negative. The recession is going to be longer and deeper than any Wall Street pooh-bah or administration economist will admit, but it will last until home prices in the major markets come into line with rents and salaries. Since three of the four biggest housing-bubble areas are at this time at least 30% above the reasonable levels, and the fourth is at least 20% above reasonable levels, a lot more wealth is going to be destroyed before the recession has a chance to end.

That means that the recession will last at least two years from the beginning (December 2007), and it will be stretched further because the efforts to keep the loss of wealth out of the rest of the financial sector will be causing more inflation (it started kicking up in December also - check the grocery prices as well as gasoline.) No one is going to want to lend money without an inflation premium, and that will also depress the economy.

My guess is that the end of the recession will be the beginning of the Christmas season, 2010.

Ignore any more positive statements you hear from Wall Streeters or government economists for at least 18 months. They get paid to be optimistic. That's been obvious since late last Summer when they were all trying to talk down the severity of the credit crisis because they didn't want to believe that things were both as unknown and as bad as they were. They remain unknown, which is why the credit markets are currently passive, and why they will continue to be as the false wealth from the housing bubble is worked out of the total financial economy.

A mere two year recession is a pipe dream. Broad mortgage prices take too long to work out for that to be the case, and those who are losing wealth will resist admitting it for a long time.

Posted by: Rick B on February 2, 2008 at 12:19 AM | PERMALINK

ex-lib: The Dow Jones Industrial Average is now rising after a 10% correction

actually a rise happened after.....this..

The cumulative 1.25 percentage point reduction in less than 10 days brings rates to 3 percent, a percentage point below euro-zone rates and among the lowest in the developed world. - moneynews.com 1/31/08

and how often does such action take place?

The moves were in line with past practice when the economy was threatened, such as during the 2001 dot-com bust, after the Sept. 11, 2001, terrorist attacks or during the savings and loan crisis that led to cuts in 1990. - wash. post 1/31/08

the bush family = disasters


Posted by: mr. irony on February 2, 2008 at 8:32 AM | PERMALINK

The Recession began in Oct. 1973. The pseudo-boom that began with M3 acceleration under Reagan was built on two-worker families, sale of the gold reserve, and a phony dollar. Now, the rest of the world is waking up to the fact that all that paper is being purposefully rendered worthless, along with all the debt those dollars represent. The Recession will end when the dollar reaches parity with the Mexican peso --- compliments of the Banana Republicans, who will be safely ensconced in Paraguay when the pitchfork- and torch-bearing mobs take to the streets.

Posted by: Jeremiad Jones on February 2, 2008 at 9:49 AM | PERMALINK

The idea that recessions are determined by an overall market contraction needs to be reassessed. For something like the bottom three quartiles of the population, living standards have been falling since the housing bubble burst either at the end of 2005 or the beginning of 2006. When wealth destruction and real incomes fall for well over 50% of the population, the economy is receding, whether economists want to say so or not.

Posted by: Brojo on February 2, 2008 at 11:42 AM | PERMALINK

I think March 2009 is waay pessimistic (I read it as March 2008 at first). To the NBER the end of a recession occurs when the economy troughs, basically roughly when GNP starts increasing (no hard and fast rules they like to keep flexibility -- Otherwise anyone could declare the end of a recession). Ordinary people typically consider recessions to continuing after the NBER declares them over. For two things, unemployment and the rate of bankruptcies of businesses usually continue to rise in the beginning of the NBER declared recovery.

My guess is that with pedal to the metal fiscal and monetary policy, GNP will trough in summer2008 . I pick August 08.

Note: my forecasts are always wrong.

Posted by: Robert Waldmann on February 3, 2008 at 6:12 AM | PERMALINK

Corpus Juris: If we aren't in a recession, it sure feels like one.

And it sure feels like recession with inflation to me and the folks I know.

Posted by: Sharon on February 3, 2008 at 10:10 AM | PERMALINK

Well, house prices are going to certainly be heading down a LOT real soon. There wasn't much of a bubble in prices where I live in Red State flyover land, but I just googled the listings here and about 1 in 3 homes listed have got one of these statements next to it:

*Great opportunity to buy a pre-foreclosure home!
*Home going to auction, so hurry!
*This property is a Judgment of Foreclosure Sale.
*This is a Real Estate owned (REO) property.
*Fantastic opportunity to buy a bank-owned home at a great price-don't miss it!

Jesus H. Christ I hardly saw any of that just two months ago. Median house prices here are about $120K. Wow, there are completely remodeled 1200 sq. foot 2BR/2BA REO homes listing for $80K! There haven't been any big layoffs here lately, so it's got to have been the interest rate resets on ARMS back in the summer just now working through foreclosure.

Posted by: Doc at the Radar Station on February 3, 2008 at 11:05 AM | PERMALINK

If the value of the dollar tumbles, as it has, the amount you have to pay for the basket of equity in the 100 stocks of the Dow goes up.

By letting the dollar fall, it makes it appear that the economy is buoyant because the number of dollars it takes to buy the Dow basket is up. This is not reality.

You must gauge the value of the economy by the willingness of people to buy into it. More specifically, in a global economy, the willingness of people from other nations to buy into our economy. If they are selling their dollar holdings, or dollars, then they don't value this economy.

There is a false sense of economic buoyancy when the stock market numbers are up. If the value of the dollar was unchanged then that upwards rise would be a real rise, but when the dollar falls faster than the market is rising the net VALUE of the market is declining.

Posted by: JM on February 3, 2008 at 7:11 PM | PERMALINK

House prices are falling because the middle class has been upside down for several years. They have hid their financial woes by taking out home equity loans, second mortgages or refinancing the primary mortgage for a larger amount. All to leverage the equity in their home becuase they NEEDED the cash for basic repairs and improvements, or to send their children to collage.

The middle class have had to leverage the apparent equity in the home becuase they were not getting enough income so they could pay for the items or expenses out of their savings.

If you don't have the income coming in to send your children to collage you have to find the money some other way, even if you have to borrow it on 30 year terms and pay 3 times the total as a result.

It is years of low and shrinking income for the working and middle class that brings us to this point.

We have to look at macro economics, and realize that on the single family end of the economics the only way out is a significant and sustained increase in income/wages. If the working and middle income people have an increase in income such that they can afford to pay off their debts, and even save some money, then the whole economy will be buoyant.

If the individual parts of the economy are not buoyant, then the aggregate will sink.

Posted by: JM on February 3, 2008 at 7:21 PM | PERMALINK




 

 

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