Call it Now: We're in a Double Dip
Over at Mike Shedlock's Global Economic Analysis, a blizzard of bad news:
I am amused by those who think a US recession will come within a year. Even more amusing are those who think a recession will not come at all.
The US is in a recession now. I am not the only one who thinks so.
Last Friday, I received an email from Rick Davis at Consumer Metrics, complete with an Excel spreadsheet that shows that had the GDP deflator been based on the consumer price index (CPI) rather than the BEA's measure of price inflation, the US would already be in the second quarter of contraction.
At which point my head started to hurt, in the exact location and intensity it did when I was back in college, trying to understand basic economics.
The gist here, though, isn't too hard to grasp. The way you get to an accurate GDP number is to take the Nominal GDP -- which is calculated in current dollars, with no adjustment for inflation -- and then, you know, adjust for inflation.
But the government, because it's so smart, has several different ways to calculate inflation -- two from the Bureau of Economic Analysis, one from the Bureau of Labor Statistics. That last one, from the BLA, is what we use to calculate the Consumer Price Index. And if you use that as your inflation index to adjust the Nominal GDP, you get negative growth. In other words, recession:
I have been talking about a global slowdown for a long time. My only concern was if and when the NBER would agree to admit the obvious. I still do not know, but as I have stated before, I expect the NBER to backdate the recession to this quarter or next.
And then he adds, because he's an economist:
That is a guess, not a certainty.
True enough. And yet.
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Comments:
May '10
Re: Call it Now: We're in a Double Dip
When you consider that fuel and food are not included in the CPI, and that food prices have increased 25% this year, this makes a lot of sense. We were barely above zero growth anyway.
Our Agriculture Secretary, whose main duty is to stay home during the State of the Union in case the Capitol is nuked, but whose name I somehow forget, says this food inflation is great for the economy. Because a lot of it is paid for by food stamps.
He should be on the Council of Economic Advisors.
Mar '11
Re: Call it Now: We're in a Double Dip
Rob, there are a number of reasons why the CPI is the wrong inflation measure to use in "deflating" nominal GDP, but the point still holds -- we are skating right on the edge.
the NBER says a "recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."
they put the greatest weight on employment (which is still rising, but barely) and real GDP (likewise).
if the technical definition of recession is important to you, I recommend watching the monthly payroll employment and the monthly real consumer spending data. these two sets of figures alone will get you 80% of the way to an accurate call. both of these peaked at the end of 2007 and were declining in early 2008, well before the NBER made their official call later that year.
Apr '11
Re: Call it Now: We're in a Double Dip
Figures don't lie but liars can figure. The technocratic systems for figuring economic growth and decline may say GDP is X and unemployment is Y but the only place any of this matters is in the hearts, minds, and wallets of the American people. The American people know that the economy has been bad for more than two years and they haven't any faith that is going to get better soon. We had QE1 and QE2, along with government outlays, which was able to push the GDP number into the positive realm ever so slightly, but now that is exhausted and we are slipping back into negative territory. With the added bonus of a vastly larger debt and a much more inflated dollar. This is not a double dip, as the pundits yack on about, it has been one long and miserable recession made worse by technocratic meddling.
Aug '10
Re: Call it Now: We're in a Double Dip
If the govt has to massage the numbers to get us to .4% growth then, yeah, I'd say we're in a recession.
BTW Rob, how come you guys are skipping the podcast this week?
Dec '10
Re: Call it Now: We're in a Double Dip
Huh. The government uses measures which favor the administration? That's unexpected.
If this is a double dip, I just wanna know, when exactly was the recovery? I seem to have missed it.
May '10
Re: Call it Now: We're in a Double Dip
I think the Yeti may have the week off. That is pure speculation.
Sep '10
Re: Call it Now: We're in a Double Dip
Take Mish with a healthy dose of salt. Over at his blog, it's always twilight, the kind of twilight you get as the atomic bomb's mushroom cloud is blotting out the sun.
Mar '11
Re: Call it Now: We're in a Double Dip
I've thought we've been headed for a double dip for a year now. No one's going to spend or invest while this President and his cabal are running things.
Jul '10
Re: Call it Now: We're in a Double Dip
Given the quality of the recovery, this is just the mayonnaise on the satan sandwich.