It's Official: The Greatest Multi-Trillion Dollar Economic Crisis in the History of Creation Has Led to a Recession
Brian Doherty | December 1, 2008, 8:17pm
So saith the Business Cycle Dating Committee of the National Bureau of Economic Research. Many (though not all) significant macro measures of economic growth have been on the downhill slide since the last quarter of 2007. The heart of the matter:
The committee determined that the decline in economic activity in 2008 met the standard for a recession..... All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion. Many of these indicators, including monthly data on the largest component of GDP, consumption, have declined sharply in recent months.
And some specifics:
The committee identified December 2007 as the peak month, after determining that the subsequent decline in economic activity was large enough to qualify as a recession.
Payroll employment, the number of filled jobs in the economy based on the Bureau of Labor Statistics’ large survey of employers, reached a peak in December 2007 and has declined in every month since then. An alternative measure of employment, measured by the BLS’s household survey, reached a peak in November 2007, declined early in 2008, expanded temporarily in April to a level below its November 2007 peak, and has declined in every month since April 2008.
.............
Our measure of real personal income less transfers peaked in December 2007, displayed a zig-zag pattern from then until June 2008 at levels slightly below the December 2007 peak, and has generally declined since June.
..........
The last monthly measure of production is the Federal Reserve Board’s index of industrial production. This measure has quite restricted coverage—it includes manufacturing, mining, and utilities but excludes all services and government. Industrial production peaked in January 2008, fell through May 2008, rose slightly in June and July, and then fell substantially from July to September. It rose somewhat in October with the resumption of oil production disturbed by hurricanes in the previous month. The October value of the industrial production index remained
a substantial 4.7 percent below its value in January 2008.
The committee noted that the behavior of the quarterly estimates of aggregate production was not inconsistent with a peak in late 2007. The income-side estimate of output reached its peak in the third quarter of 2007. The product-side estimate reached a temporary peak in the same quarter, but rose to a higher level in the second quarter of 2008.
Link via Marginal Revolution.
Isaac Bartram | December 2, 2008, 1:14pm | #
Believe it or not, joe, I am not simply faulting the Democrats for the sake of abusing them here.
What I am saying is that we have become mired in a borrow and spend cycle over which neither party has any control. The economy as we know it has become totally dependent on this cycle of debt and spending.
We long since passed the point of no return for doing anything about it without a serious and painful dislocation and adjustment.
Of course when the whole thing collapses (as some seem to think is likely) the catastrophe will be that much worse.
See, joe, in the end I agree. A Keynesian approach of fiscal stimulus (tax cuts and spending on infrastructure projects and direct cash relief) are probably the best course (of the ones politically available) at this time.
We may in the end quibble about the size, with me likely arguing form more modest spending and wider and larger tax relief, but i agree you're essentialy right.
The problem is, that as we have seen since WWII, the need for stimulus never seems to come to an end.
Because, when all is said and done, "stimulus" is usually how the party in power hands out its favors.
Of course if you can just continue to yell "rah, team blue, boo, team red" that's fine too. I think we're kind of used to it.
HAL-9000 | December 2, 2008, 4:33pm | #
Most predictions of catastrophic doom have turned out instead to be problems that were muddled through and eventually worked themselves out (e.g. "Bankruptcy 1995"). So I am similarly optimistic (over the long term) about the current situation.
Kohole,
I would tend to agree with you on that estimation. The only thing that leads me to suspect otherwise are the trends of the United States on a balance sheet since 1970 or so.
The public and consumer debt of the United States hasn't just gone up in real terms since 1970, its slope on a graph is logarithmic over that time, kind of like the energy rise in a runaway chain reaction in a exploding nuclear weapon core. Interesting insight on the math of the nuclear weapon is that virtually all the energy in the resulting detonation is emitted in only the last four or five generations of neutron multiplication, the previous seventy-eight or so generations of neutron production was just to ramp up to that point; and that process is an apt metaphor for our own debt-o-nation (oh, what a bad play on words!).
The borrowing this year, even sans bail out and wars, basically amounts to the operating budget of the United States Government outside of the "on-book" DoD budget and entitlement checks. Uncle Sam literally has to float a loan just to keep the lights on in Federal buildings that don't look like a pentagon.
Whats even more disturbing about that trend is that this nation's own markets are tapped-out on buying Treasuries, we depend on foreigners to have an appetite for the things. Never before has the United States been facing insolvency before every Treasury bond auction, but that's essentially what the process is. No one shows up at the bond auction and its a Brave New World relative to any historical precedent.
Last caveat with foreigners is it takes away FDR-type options, because essentially the government cannot screw China out of being paid back what it has lent Uncle Sam. FDR could by executive fiat (apparently) take away everyone's gold, tell them what the price of a dollar was, and tell them when and where to get those dollars. China is not such a captive market for ripping off as American citizens in respect to those types of manipulations. You add all that up, and the fact the Boomers are pulling the vote levers (and they will pull those levers for their entitlement checks, every time) more than any other group for the next ten years, and I see the ground through the clouds now, and Uncle Sam has no parachute.
Unless someone invents controlled fusion tomorrow, there will be no economic engine from heaven that I see to stave this off, like it was with the internet in the 90's (thanks Al Gore!) or the personal computer itself in the 80's. A lot of Someone who is owed a lot of something is going to get screwed for this nation to remain solvent. Either it will be the boomer's children who pick up the tab and expect no goodies themselves, or the foreigners for foolishly buying all those Uncle Sam Backed Securities ("toxic assets?"). The question now is do we pick the loser by fiat today, or let "market forces" beyond any single sovereign's control make the decision for us down the road, "naturally?"
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