Tuesday, October 21, 2008

Start date of recession? 

The Economist links to a suggestion that the recession started in October 2007. If you look at the data that Floyd Norris (whom the Economist quoted) uses, October 2007 is about the earliest date you could pick. The peaks in the four elements of the coincident indicator series are October twice (personal income less transfers, manufacturing and trade sales), December (employment) and January 2008 (industrial production). There was acceleration of real GDP in quarter 2 of this year, however, probably due to an increase in transfer payments via those stimulus checks. Those do not get counted in the personal income data NBER uses. However, if it influences monthly GDP, and NBER is also looking at that series, it may push this off. Macro Advisers, the creators of the series, report:
Monthly GDP declined 1.1% in August following a 0.1% decline in July. The 1.2% decline over July and August only partially reversed a 1.6% increase over the prior two months. While there have been several 2-month increases of 1.6% or better in the short history of monthly GDP (since early 1992), there has never been a two-month decline as large as 1.2%. The closest was a 0.9% decline in the midst of the 2001 recession. The decline in monthly GDP in August was largely accounted for by a sharp decline in nonfarm inventory investment. Our latest tracking estimate of a 0.3% decline in GDP in the third quarter assumes essentially no change in monthly GDP in September.
There was a sharp decrease in February 2008 as well, but the next four months are +0.5, -0.1, +0.8 and +0.8. e-forecasting would give you the same look. There would have to be a sharp downward revision in the GDP data -- which Norris says is likely. But employment and production data are also subject to revision.

I'm glad I am not on the Business Cycle Dating Committee.

What I currently tell people is that we are most likely in recession now, but that it did not start until sometime in summer. July, if I have to pin a month. The more severe recessions, like this one probably will be, last about five quarters, putting the end sometime in the fourth quarter of 2009. Good luck Mr. President, whoever you are.