Friday, September 28, 2007
One thing to note: The survey period was right at the height of the subprime mortgage crisis, but the data we collect outside of the survey was taken before it. The survey is not used in the probability estimate.
The new report in full should be up here shortly; I don't have a final copy myself yet.
UPDATE: The number one comment I see (for example, here) is that a 40% chance of recession means a 60% chance of there not being a recession. Yes, that's quite true. But the history of economic growth since WW2 is that expansions last 57 months and recessions last ten months. A 40% chance that we're in recession six months from now is thus much more than what you would expect just by chance. That's enough of a signal to tell me something important. It's also why a signal of 20%, even though it's pretty unusual with the model we're using, doesn't really trip my trigger.
Also, reading this new note from the Dallas Fed says something similar to what we're saying about the local economy:
Two decades ago, keeping tabs on shifts in investment spending and consumer durables purchases was crucial for understanding swings in GDP growth. Tracking shifts in investment spending remains critical, but changes in household spending on nondurable goods are now more important than movements in consumer durables. Meanwhile, the fraction of jobs growth volatility attributable to firms in professional and business services has risen to the point where this sector has become the largest contributor to short-run swings in aggregate jobs growth.Thus the fact that local manufacturing has held strong isn't as indicative of economic strength as it might have been twenty years ago.