"Emancipate yourself from mental slavery, none but ourselves can free our mind.” - Bob Marley

Sunday, September 21, 2008

For All You Recession Denialists, Part 2

It's NOT about 2 quarters of negative GDP growth, and it hasn't been for years.

The NBER, National Bureau of Economic Research, is responsible for timing the start and end of recessions. They say here:

The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
[Emphasis added].


The also say here:

The committee's approach to determining the dates of turning points is retrospective. We wait until sufficient data are available to avoid the need for major revisions. In particular, in determining the date of a peak in activity, and thus the onset of recession, we wait until we are confident that, even in the event that activity begins to rise again immediately, it has declined enough to meet the criterion of depth. As a result, we tend to wait to identify a peak until many months after it actually occurs.
...
It's more accurate to say that a recession-the way we use the word-is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when the economy is contracting.
...
Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. The most recent recession in our chronology was in 2001. According to data as of July 2008, the 2001 recession involved declines in the first and third quarters of 2001 but not in two consecutive quarters. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.
[Emphasis added, paragraphs may be re-ordered]


Note the part about the revisions: we see here that after revision, 4Q2007 GDP growth was actually NEGATIVE. This happened on or about July 31, 2008. So we still don't know the real 1Q2008 numbers yet, leave alone later quarters.

Mike Shedlock (aka Mish) looks at this issue here. One of his points - "How can we have an understated inflation rate of 4%, and a GDP Price Deflator of just 2.6%?" - is particularly well taken, given the known rigging of the CPI ("hedonic adjustsments" and other such nonsense) described here and shown graphically here. The flaws in GDP statisitics are discussed here.

Summing up: Once youe realize that the "2 quarters of negatice GDP growth" is the mindless repetition by the MSM of an outdated measurement model, you can see that things have been going the wrong way for quite a while.

11 comments:

OBloodyhell said...

> The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

So it's whatever some idiot bureaucrat says it is?

That's not economics, that's voodoo.

UBAAA!

Ubaooooo
HaaaaaHu!!

Ik! Ik! Ik!

Recession BE GONE!!


:-/

Science requires OBJECTIVE MEASURES bob.

You can't make it up as you go along. That's not science.

This is why "Global Warming Theory" is utter and complete crap, and why that pseudo-definition is utterly useless unless your goal is to paint the current adminstration badly.

Sorry, Let me restated that, in less complex terms:

F*** the NBER *and* their pseudo-definition with a spiked stick.

OBloodyhell said...

> Note the part about the revisions: we see here that after revision, 4Q2007 GDP growth was actually NEGATIVE. This happened on or about July 31, 2008. So we still don't know the real 1Q2008 numbers yet, leave alone later quarters.

a) Correct, and until we do, IT's NOT A RECESSION.

b) It's unlikely that 1Q2008 is going to drop, since they revised the numbers UP AT ONE POINT. Probably, they'll go down in 2Q, and almost certainly in 3Q, but until they do, it's not a recession.

c) While it is correct that they were negative after the revision, it was tiny. GDP went down all of -0.6%. It fits the bill, but if you're going to claim we get to make things up, then that's not a winner, esp. if 1Q2008 goes up, as I think it will.

OBloodyhell said...

that's down by
"-0.6%", btw. stupid linebreak screwed the pooch.

OBloodyhell said...

> Summing up: Once youe realize that the "2 quarters of negatice GDP growth" is the mindless repetition by the MSM of an outdated measurement model,

Uhhh, bob, I don't know what alternate universe YOU'VE been getting your news from, but the MSMs have been calling it a recession for about 18 months, trying to make the Bush admin look bad and throw the election to the Dems.

Nawwww. They wouldn't do that. They're objective journalists... Aren't they?

It's the economists who say it's not a recession by definition... at least the ones who haven't sold out to the Dems.

OBloodyhell said...

Moving a response to the previous recession thread to here, just to keep it all in the same place:


========================
> Read the paper here on how the CPI has been compromised.

Uh, bob, I don't put much faith in anyone who uses the exceedingly loaded term "shadow government" in a serious way.

"shadow government" == "conspiracy theory"

Try this, instead:

Misconceptions and Myths About the CPI

That would be vetted by a professional economist who went to George Mason, where Walter Williams teaches.

*HIS* bona-fides I trust.

> This "if we don't talk about it, it won't be so bad" is mostly crap

Stop putting words in my mouth I never said:
I quote --
when you scream recession, endlessly and loudly, you substantially increase the negativity about the economy in the general public. This, in itself, has a lot to do with producing a recession, at least part of which has often got a lot to do with public perception and attitude. It's not the primary driving force, but it damned sure contributes to both the length and depth of one.
===========================
So claiming it falsely is a PARTICULARLY VERY BAD THING
===========================


Telling people that this is a recession, that it's the worst it's been since the Great Depression, making constant connections to the Great Depression, for around TWO YEARS is flat out BULLSHIT bob.

Is it a downturn? Sure.

Since most people have known one fairly easy downturn in the last 15 years, they don't have the slightest @%$$%#& clue what a real recession is -- much less a catastrophe like The Great Depression.

You know how to tell when things are that bad, bob?

When you see Hoovervilles popping up.

Anyone who claims this is even as bad as the 1970s is either a lying sack of bovine fecal matter or an ignorant fool.

I know -- *I* was there.

This is NOT that bad -- not by a long shot -- so far, it's not even as bad as the MILD recession we got after Clinton's Boom went bust and got 9/11 piled on top of it.

But when you TELL people "Oh, oh, it's SOOOO horrible every friggin night on the news", they have a bad tendency to start to believe it.

And they behave DIFFERENTLY, bob, which can CAUSE the very thing which one should be trying to avoid.

bobn said...

So it's whatever some idiot bureaucrat says it is?

No it's what the NBER says it is. It always has been, It's just that NBER says it's not what *you* say it is. Tough shit.

It's the economists who say it's not a recession by definition... at least the ones who haven't sold out to the Dems.

Please provide a link that doesn't invoke the "2 quarters decline in real GDP".

Everybody wrongly attributes that "2 quarters" stuff to the NBER - and NBER says when it's a recession, not OBH or all his right-wing nuts buddies.

You're the one ignoring the science.

OBloodyhell said...

Try this as an alternative.

I know you don't like the CRA element, but read the whole thing anyway, it does not cover just that. There are a lot of links embedded, too.

OBloodyhell said...

> It's the economists who say it's not a recession by definition... at least the ones who haven't sold out to the Dems.

Please provide a link that doesn't invoke the "2 quarters decline in real GDP".


BOB -- the NBER is ****ONE**** organization.

They are not the ONLY organization.

Quoting them is apparently like quoting the IPCC to a Warmist, to you.

You drool whenever they ring a bell.

Please provide another link which doesn't depend on only the NBER to define what a recession is, and that includes a definition which is OBJECTIVE and NOT something that means ONE THING "this recession" but has NO NECESSARY meaning on "the NEXT recession".

Argue THE POINT and stop trying to simply claim your "authority" is THE only valid authority.

The NBER is NOT using an objective definition.

"A recession is whatever we want it to mean".

Yeah, *right*.

I'm not going to ACCEPT a definition that is NOT OBJECTIVE.

It's NOT SCIENCE

That's not "tough shit", bob -- that's "BULL shit".

OBloodyhell said...

> You're the one ignoring the science.


Yes, I'm quoting economists, you're quoting a bunch of bureacrats.

Earth to bob:

Tell us when your spacecraft lands, huh?


> not OBH or all his right-wing nuts buddies.


*MY* source has a PhD in economics from one of the top economics schools in the country.

What does your "Shadow Government" source have?

I took a quick look, I couldn't see much detail in that regard. Kinda telling.

DOCTOR Perry gives you his bona-fides on the top right corner of his blog.

>:-/

Economics is one of the most complex things humans have yet studied. It's FILLED with pitfalls that seem reasonable and rational but AREN'T TRUE.

It's also easy to produce a lot of nice looking charts and numbers that don't make the least bit of sense in reality, as a result of that.

Either READ what the PhD Economist says is accurate about the CPI, and then define why YOU can be SURE that it's wrong or *bite me* bob.

bobn said...

You know how to tell when things are that bad, bob?

When you see Hoovervilles popping up.


Gee thanks, Right on cue.

When was the last time you saw 1 investment bank fail, leave alone 3? (Bear Stearns, Merril Lynch, Lehman Bros - Morgan Stanley in the wings.)

Or a massive insurance conglomerate (AIG) and 2 bond insurers (AMBAC and MBIA)?

Or the GSEs?

The comparison is not to the the Depression (yet - and I don't want it to be, though I think it's possible) but to the massive credit bubble run-up and bust that preceded it and the general chaos in the markets. Get you head out of your ass and look around.

Yes the NBER is one organization. It's also the one everybody looks to for timing recessions - in fact, the MSM typically don't call it a recession without quailfying that NBER hasn't offically called it yet. So, I concede, officially it isn't - but the large numbers of newly unemployed might take issue with that. Amd everything else looks like it to me.

But if you'll stop clinging to your BJS (Bush Justification Syndrome) long enough to open your fucking eyes and *look* at what's happening, you just might be a little disturbed.

Did you even bother looking at the text of the links to shadowstats, or just conveniently deny that anything could be there? The CPI is massively rigged, and since much of what makes up the CPI also goes into the GDP deflator, that is also suspect. THAT's WHY NBER DOESN'T USE IT, aside from the massive "revisions" it is subject to - months after the headlines have faded.

Your buddy Perry just quotes folks at BLS Division of Price and Index Number Research - oh yes, they would never lie to us.

The Anchoress? Please, if I want faith-based economics I'll go to church. And I'm not going to wade through anything that even mentions the CRA in the same breath as the mortgage crisis because THAT IS HORSESHIT and anybody that doesn't know that is a moron not worth the time to read.

bobn said...

When was the last time you saw 1 investment bank fail, leave alone 3? (Bear Stearns, Merril Lynch, Lehman Bros - Morgan Stanley in the wings.)

Make that 5 - Goldman Sachs and Morgan Stanley are turning into bank holding companies, which makes them defunct as Investment Banks.

About Me

I'm a 57 year old geek. I voted Democratic for 20 years, because I disliked the Republicans more. But now, nobody really speaks for me. I'm for Guns, for more correct government regulation of the financial world, against illegal immigration and amnesty. (in 2008 I ended up voting Republican - too many questions about Obama, and voting against anybody who voted for TARP 1.) In 2010 I voted a stright republican ticket because the Democrats have completely lost their minds.