Market Talk

Double dip. The infamous Seinfeld phrase has taken on a whole new meaning when discussing the economy’s latest prospects.

The latest stock-market swoon has folks concerned that the recovering economy may now be “double-dipping” back into recession. It’s still too early to tell whether this is the case, but recent economic data point to the economy expanding at a much slower rate than previously anticipated.

Of course, a “double dip” may not be possible, considering the Great Recession still hasn’t officially come to an end, at least according to the National Bureau of Economic Research. Robert Hall, chairman of NBER’s economic dating cycle committee, sheds some light on declaring double dips, in an interview with the AP.

In Hall’s view, a double dip is akin to a continuous recession that’s punctuated by a period of growth, then followed by a further decline in the economy.

The NBER doesn’t define a double dip any more specifically than that, says Hall, an economics professor at Stanford University.

In econo-speak, Hall explains: “The idea — hypothetical because it has yet to happen — is that activity might rise for a period, but not far enough to complete a cycle, then fall again, and finally rise above its original level, only then completing the cycle.”

But that hasn’t stopped bloggers and economists from weighing in on the double-dip debate.

Continue reading…

The big talk these days is over the double-dip, the question of whether or not the economy will slip back into recession. The bulls say no, the bears say maybe, the pragmatists say it doesn’t matter because the economy stinks regardless. The markets are talking about it, the Fed is thinking about it, Spain’s problems are threatening to make it come true.

Look, if the recovery builds steam, as most people still believe, then the economy will grow, jobs will be created, and the government’s efforts will have paid off, no matter the cost and there won’t be any double-dip. If the recovery falters, if the jobs markets stagnates, if wages stagnate, if the government is so squeezed from its last go-round with bailouts and stimulus that it’s unable to blow mind-numbing amounts of money on boosting spending, well, there still won’t be a double-dip. Why?

Because it’ll be a sign the economy never actually came out of the first dip.

The signs are growing that the real economy is hitting a plateau, if not rolling over, as the various and massive government interventions into the private market fade (except for ultra-low interest rates; the Fed’s nowhere near raising them.) What’s pushed the recovery along this past year has has been government intervention, massive stimulus spending, massive inducements to consumer spending, massive monetary easing. It’s all been temporary, however, and as various programs dissipate, the real economy is left to do the heavy lifting. There are indications it isn’t up to that job.

Continue reading…

We say this is still a recession

Yesterday’s statement from the NBER Business Cycle Dating Committee seemed a bit odd.

The committee usually releases a statement when it has something substantial to say about the economy. But saying it was maintaining the status quo on its recession call and holding off on declaring the downturn over seemed strange.

But Jeff Frankel, Harvard economist and a committee member, sheds some light on the reasoning behind the statement.

“The press was bound to find out that there had been an in-person meeting (as it did), and so the confusion created by issuing the statement was probably less than the confusion that would have been created by remaining mysteriously silent,” Frankel writes on his blog.

So there you have it. The committee thought ahead about the repercussions of its meeting getting leaked and appeared to act in a transparent manner.

That hasn’t stopped Frankel, himself, as well as Robert Gordon of Northwestern University from stepping forward and claiming the recession is already over.

But what seems to be getting lost in translation is this debate doesn’t really impact investors. Sure, officially calling the recession’s end sounds good from a psychological standpoint, but it’s not likely to impact policy decisions.

“The NBER is attempting to identify peaks and troughs in the economic cycle for research purposes,” Jeffrey Miller, CEO of NewArc Investments, writes at A Dash of Insight. “The NBER has a research mission, not a policy mission.”

Continue reading…

On the same day the NBER Business Dating Committee Cycle announced it’s still too soon to declare the recession over, yet another dissenter from the committee comes forward.

This time, Robert Gordon of Northwestern University and a member of the committee says he “strongly disagrees” with the committee’s decision.

“It is obvious that the recession is over,” he says, noting he believes it ended in the second quarter of 2009.

“The American economy is enjoying strong upward momentum that is evident every day in the announcements of retail sales, service sector production, and almost everything else,” he adds. “There are no negatives in the actual data, but rather the negatives reside in doomsayer worries that consumers are too weak to spend or that the economy will collapse after the Obama stimulus dollars have been spent.”

He also finds the prospects for the economy double-dipping back into recession “extremely implausible.”

Gordon’s dissent comes one week after Harvard economist and fellow committee member Jeffrey Frankel said the recession was over. Frankel based his opinion off the labor market, which was showing signs of life last July before finally experiencing job growth last month.

It seems reasonable, of course, to assume other committee members aren’t so convinced.

Continue reading…

The recession isn’t actually over, although it may be, and Greece’s problems are over, although they actually may not be. Confused? No need to be, just give us three minutes to explain.

Be nice if we could see around those trees.

This morning’s statement from the NBER struck me as something of an outlier. The committee, after all, isn’t a particularly garrulous group, officially at least. They generally make official statements only to mark  the turning points in the economy. Seeing as recessions don’t come along every day, that means years can pass between committee statements. They don’t offer midterm reports.

So I asked Harvard’s Jeffrey Frankel, a member of the dating committee, how common it was for the committee to issue statements like the one today. “Announcements that are not findings of turning points come along less frequently, but they do come along,” he wrote in an email. “The closest parallel to this morning’s release that I can think of happened in 1981, I think it was; an announcement that the committee was not yet certain enough to call the turning point.”

So these kinds of statements are very rare; the last one was nearly 30 years ago. Now, lest you need reminding, scroll down this table to the early 1980s. The economy was coming out of a recession that ended in July 1980, and entering another one that started in July 1981.

The dreaded “double-dip,” if you will. Conspiracy theorists, tin-foil hat types, bears, doubters, tea-partiers, Mark Levin, have at it. Personally, I find it an eyebrow raiser, too. Frankel, however, isn’t very concerned.

Continue reading…

In case you’re still not sure what the NBER is looking at, Gluskin Sheff’s David Rosenberg puts it all into perspective:

Based on the few voiceblasts from Wall Street research departments we have received so far today, strategists are becoming more cyclical in their equity allocations and economists are treating the latest private payroll rebound as gospel (even if at odds with the ADP survey) and revising up both Q1 and Q2 real GDP estimates for the USA. Having worked on the “sell side”, we can assure you that the pressures to be bullish at all times is intense, and the vast majority of the “bulls” who managed to get it right over the past year never saw the credit downturn coming and most of the economists began to call for recession long after it occurred.

It is very interesting to see that the arbiters at the National Bureau of Economic Research are still very wary about even declaring that we are in a recovery despite the 70%+ rally off the lows (see “Arbiters of Recessions Wary of Certifying an Upturn” on page B1 of today’s NYT). While much of the focus is in real GDP, it is not clear that GDI (income) is signaling anything more than a one-quarter blip right now. The government release of private payrolls is showing gains but the rival ADP survey just flagged a new all-time low. Outside of government transfers, personal income is still on a downward path. Housing is showing no sign of recovery. What we have is modest consumer growth aided by intense government support and an arithmetic contribution from inventories.

As it stands, everything from shipments to orders to auto sales to output to employment to housing starts to home sales are still nowhere near their pre-recession levels. And it should not be lost on anyone that the S&P 500 is still down 24% from the highs and has gone nowhere now for over a decade and so unless you are a gifted day-trader, all we are left with is three bull markets, two bubbles, two collapses and a heck of a lot volatility – and nothing to show for it except a lot of red ink and a lot of sleepless nights.

You know what, Al? Let's just leave these down here for now.

So the bulls are poised, or at least they think they’re poised, to decisively declare victory. The Dow is dancing with 11000, another stellar earnings season is here, and Greece is getting bailed out, again (but only if they actually need a bailout, and as we all know they haven’t actually asked for anything, right?)

The economy is rebounding smartly, jobs are back, the clouds have parted, Floyd Norris is confident enough to pay retail again.

But the bulls can’t quite put the recession to sleep now, can they? This morning, the National Bureau of Economic Research, the private shop that is the official arbiter of dating recessions, came out and said it’s too early to call the recession over.

“Many indicators are quite preliminary at this time and will be revised in coming months. The committee acts only on the basis of actual indicators and does not rely on forecasts in making its determination of the dates of peaks and troughs in economic activity.”

Of course, this won’t change the minds of the Kudlows out there, who called the recession over a year ago (and also, incidentally, only allowed as that there even was a recession about a year and a month ago; recessions are extremely short-lived in Kudlowian circles.) And to be fair, the committee didn’t say the recession was definitively still on, only that it didn’t have enough information to say it was over.

What it means, though, is that the risks are still on the table, no matter what the stock market is saying, no matter what the VIX is flashing. When you see trees in front of you, it’s usually because you’re still in the forest.

Continue reading…

The recession's over!

“The recession is over.”

Strong words from Jeff Frankel, Harvard economist and member of NBER’s Business Cycle Dating Committee. His opinion is based off the March jobs report, which showed the economy added 162,000 jobs. Job market indicators were showing signs of life last July before turning positive last month. From Frankel:

This is the more definitive criterion, because a recovery is defined as a period of increasing economic activity. The nine month wait was painful. But the lag between positive income growth (June 2009) and positive job growth (March 2010) turned out to be shorter than in the preceding two recessions (one to two years).

Interesting comments from Frankel, especially considering his stature on the dating committee. He fails to give an exact time for when the recession officially ended, which is important because many pundits have differed on the recession’s ending, with dates ranging from last summer to last month.

Some skeptics aren’t so certain about Frankel’s declaration.

“I’m waiting for more than one month of somewhat encouraging employment data before coming to that conclusion,” writes University of Oregon economics professor Mark Thoma. “It’s always possible that one month is a blip, not a trend.”

Continue reading…

Almost nobody, it seems, wants to say the recession isn’t over. Wall Street thinks it ended in the summer. The White House desperately wants it to be over. The Federal Reserve thinks it’s over, too.

Back in July, ahead of the report on 2Q GDP, I wrote that it was too early to say the recession was over (funny, if the recession did end in July, my timing would have been impeccable, although my call would be completely wrong.) I said one needed to focus on the factors that the NBER used to judge the economy — industrial production, employment, wages, retail sales and GDP — and taken together, none of them had hit a definitive bottom (which, at the time, was true.)

GDP seems likely to notch its second straight increase when the 4Q gets reported at the end of this month. And industrial production pretty clearly bottomed out. But the other measures aren’t so clear cut, and two of them, wages and employment, may still be pointing at a recession, William Hester writes for Hussman Funds.

Wages, he notes, have been roughly flat since April. Employment, as everybody knows, continues to decline. Those are the two measures upon which the NBER puts “particular emphasis,” he says, as they show activity across the entire economy.

The current job market is closely tracking the employment situation in 2001. Here it’s important to keep in mind that although the recession was declared to have ended in November of 2001, the bear market in stocks resumed after a brief period of strength, and ultimately continued for another 15 months. The bear market finally ended about 5 months prior to a sustained improvement in the job market.

That’s why the December jobs report was such a disappointment; not for the actual number (85,000 in a labor force of roughly 140M workers is tiny,) but for the weakness of the trend (albeit, it’s not as weak as it was at the start of 2009, when it was plunging into depression territory.) What’s been propping up the economy these past months has been almost entirely government spending, and this is why the White House is so sensitive. At some point, the economy needs to show that it’s becoming self-sustaining. It has not done so yet.

This is why there’s still chatter about a potential “double-dip,” that the economy slides back into recession. Former NBER chieftain Martin Feldstein said the risk is significant. “I don’t think the Obama administration is doing anything to reduce that risk. They are assuming the momentum is there.” While he’s criticized the stimulus, he thinks the administration needs to turn its attention toward fiscal discipline rather than more stimulus plans.

At some point, they surely will. But it likely won’t be soon.