Friday, September 28, 2007
Busy morning
I am taking some radio interviews this AM after release of today's Quarterly Business Report. The letter 'R' in the headline (you won't see it in the online piece, but they have "The R-Word" in big letters above the fold in the print copy -- I could not look at it during breakfast) is about half the front page. Every other quarter the paper has run this story on a Sunday, so it was a surprise to see it today, but I guess the news value of what we said was enough to move it up.
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:
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.
