GDP vs. everything else
So it is a recession, or isn't it? Personally I'm starting to find the whole discussion extremely tiring. But it has political implications, and this morning's employment report seems to help answer the question, so here goes:
Yeah, we seem to be in a recession. Although it's still a lot milder than I and a lot of other people would have expected given how messed up the financial world is.
What has kept the recession call debatable so far this year has been the refusal of the gross domestic product numbers compiled by the Commerce Department to go along. GDP is up, while most every other economic indicator of significance is down. Now I'm a big fan of GDP and all, but the very fact that it tries to represent the entirety of economic activity makes GDP perhaps the least reliable real-time economic indicator. There are just too many estimates and fudges involved to get it right at first.
So if the GDP report (3.3% real growth in the second quarter) and the employment report (payrolls down for the eighth month in a row in August, unemployment up to 6.1%) seem to disagree, believe the employment report.
Update: If you're curious what actually makes a recession qualify as a recession, as commenter True Conservative is, read this post.
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1
Yes, the "recession" argument is rather like listening to lit crit types argue about genres.
But question:
I've researched quite a bit, and posted this query on a couple of econoblogs: is there an actual formula of some type that NBER uses? Or is it just a bunch of worthy sages standing at the taffrail holding up their collective thumb and squinting at the wake?
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2
The latter.
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3
Thanks. That's what I thought.
No wonder you're finding the discussion tiring.
Like genres: is Troilus and Cressida a tragedy or a comedy? Or "history, pastoral, pastoral-comical, historical-pastoral, tragical-historical, tragical-comical-historical-pastoral"?
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4
The GDP number is affected by imports. The huge run-up in oil price (large imports) effectively INCREASES GDP in the current quarter. Later, as these increase in inputs are factored into the economy they show up in the inflation numbers and get factored out of the statistic on growth of the economy.
See Barry Ritholz's the Big Picture for more.
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5
BH has an estimate that without the oil price distortion the economy grew at .1% in the quarter.
Brad Delong has a pretty good post up about when the economy peaked (Dec 2007, says he).
We'll see when the NBER names the recession as starting when they come in after the election.
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