Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
Silver Bull Market Update - 7th Aug 20
This Inflation-Adjusted Silver Chart Tells An Interesting Story - 7th Aug 20
The Great American Housing Boom Has Begun - 7th Aug 20
NATURAL GAS BEGINS UPSIDE BREAKOUT MOVE - 7th Aug 20
Know About Lotteries With The Best Odds Of Winning - 7th Aug 20
Could Gold Price Reach $7,000 by 2030? - 6th Aug 20
Bananas for All! Keep Dancing… FOMC - 6th Aug 20
How to Do Bets During This Time - 6th Aug 20
How to develop your stock trading strategy - 6th Aug 20
Stock Investors What to do if Trump Bans TikTok - 5th Aug 20
Gold Trifecta of Key Signals for Gold Mining Stocks - 5th Aug 20
ARE YOU LOVING YOUR SERVITUDE? - 5th Aug 20
Stock Market Uptrend Continues? - 4th Aug 20
The Dimensions of Covid-19: The Hong Kong Flu Redux - 4th Aug 20
High Yield Junk Bonds Are Hot Again -- Despite Warning Signs - 4th Aug 20
Gold Stocks Autumn Rally - 4th Aug 20
“Government Sachs” Is Worried About the Federal Reserve Note - 4th Aug 20
Gold Miners Still Pushing That Cart of Rocks Up Hill - 4th Aug 20
UK Government to Cancel Christmas - Crazy Covid Eid 2020! - 4th Aug 20
Covid-19 Exposes NHS Institutional Racism Against Black and Asian Staff and Patients - 4th Aug 20
How Sony Is Fueling the Computer Vision Boom - 3rd Aug 20
Computer Gaming System Rig Top Tips For 6 Years Future Proofing Build Spec - 3rd Aug 20
Cornwwall Bude Caravan Park Holidays 2020 - Look Inside Holiday Resort Caravan - 3rd Aug 20
UK Caravan Park Holidays 2020 Review - Hoseasons Cayton Bay North East England - 3rd Aug 20
Best Travel Bags for 2020 Summer Holidays , Back Sling packs, water proof, money belt and tactical - 3rd Aug 20
Precious Metals Warn Of Increased Volatility Ahead - 2nd Aug 20
The Key USDX Sign for Gold and Silver - 2nd Aug 20
Corona Crisis Will Have Lasting Impact on Gold Market - 2nd Aug 20
Gold & Silver: Two Pictures - 1st Aug 20
The Bullish Case for Stocks Isn't Over Yet - 1st Aug 20
Is Gold Price Action Warning Of Imminent Monetary Collapse - Part 2? - 1st Aug 20
Will America Accept the World's Worst Pandemic Response Government - 1st Aug 20
Stock Market Technical Patterns, Future Expectations and More – Part II - 1st Aug 20
Trump White House Accelerating Toward a US Dollar Crisis - 31st Jul 20
Why US Commercial Real Estate is Set to Get Slammed - 31st Jul 20
Gold Price Blows Through Upside Resistance - The Chase Is On - 31st Jul 20
Is Crude Oil Price Setting Up for a Waterfall Decline? - 31st Jul 20
Stock Market Technical Patterns, Future Expectations and More - 30th Jul 20
Why Big Money Is Already Pouring Into Edge Computing Tech Stocks - 30th Jul 20
Economic and Geopolitical Worries Fuel Gold’s Rally - 30th Jul 20
How to Finance an Investment Property - 30th Jul 20
I Hate Banks - Including Goldman Sachs - 29th Jul 20
NASDAQ Stock Market Double Top & Price Channels Suggest Pending Price Correction - 29th Jul 20
Silver Price Surge Leaves Naysayers in the Dust - 29th Jul 20
UK Supermarket Covid-19 Shop - Few Masks, Lack of Social Distancing (Tesco) - 29th Jul 20
Budgie Clipped Wings, How Long Before it Can Fly Again? - 29th Jul 20
How To Take Advantage Of Tesla's 400% Stock Surge - 29th Jul 20
Gold Makes Record High and Targets $6,000 in New Bull Cycle - 28th Jul 20
Gold Strong Signal For A Secular Bull Market - 28th Jul 20
Anatomy of a Gold and Silver Precious Metals Bull Market - 28th Jul 20
Shopify Is Seizing an $80 Billion Pot of Gold - 28th Jul 20
Stock Market Minor Correction Underway - 28th Jul 20
Why College Is Never Coming Back - 27th Jul 20
Stocks Disconnect from Economy, Gold Responds - 27th Jul 20
Silver Begins Big Upside Rally Attempt - 27th Jul 20
The Gold and Silver Markets Have Changed… What About You? - 27th Jul 20
Google, Apple And Amazon Are Leading A $30 Trillion Assault On Wall Street - 27th Jul 20
This Stock Market Indicator Reaches "Lowest Level in Nearly 20 Years" - 26th Jul 20
New Wave of Economic Stimulus Lifts Gold Price - 26th Jul 20
Stock Market Slow Grind Higher Above the Early June Stock Highs - 26th Jul 20
How High Will Silver Go? - 25th Jul 20
If You Own Gold, Look Out Below - 25th Jul 20
Crude Oil and Energy Sets Up Near Major Resistance – Breakdown Pending - 25th Jul 20
FREE Access to Premium Market Forecasts by Elliott Wave International - 25th Jul 20
The Promise of Silver as August Approaches: Accumulation and Conversation - 25th Jul 20
The Silver Bull Gateway is at Hand - 24th Jul 20
The Prospects of S&P 500 Above the Early June Highs - 24th Jul 20
How Silver Could Surpass Its All-Time High - 24th Jul 20

Market Oracle FREE Newsletter

How to Get Rich Investing in Stocks by Riding the Electron Wave

Is the Recession Over?

Economics / Recession 2008 - 2010 Feb 16, 2010 - 01:56 AM GMT

By: John_Mauldin

Economics

Diamond Rated - Best Financial Markets Analysis ArticleThere is some debate about whether the recession is over. The National Bureau of Economic Research (NBER), a non-governmental organization made up of economists, has a committee that meets and decides after the fact when recessions begin and when they end. Martin Feldstein, the former president of the NBER, focusing on the job market, said last November that "the current downturn is likely to last much longer than previous downturns ... We will be lucky to see the recession end in 2009."


I have called this recovery a Statistical Recovery, in that some of the normal metrics are only getting better in comparison to very bad numbers a year ago. It is likely that we will still have not recovered to the level of economic activity we enjoyed at the peak of the last cycle over two years ago on a nominal basis. This is highly unusual and lengthy for a recession.

William Hester of the Hussman Funds ( www.hussmanfunds.com) has written a very thorough analysis of what the NBER committee will be looking at to tell us whether the recession is over or not. Not surprisingly, the data is to as conclusive as one might like. Some of the tings which they look at seem to clearly suggest the recession is over, and was over last summer. Others are not so clear, which is why Feldstein is not ready to say the recession is over.

I think you will find this Hester's analysis interesting as this week's edition of Outside the Box. I especially liked the charts, as it gave me some insights into past recoveries. All the best, and have a great week!

John Mauldin, Editor
Outside the Box

A View from the NBER Recession Indicators

William Hester, CFA , Hussman Funds

The Business Cycle Dating Committee of the National Bureau of Economic Research (NBER) sets the official dates for the beginning and end of recessions. One might imagine that these are not exciting meetings, but the next few may be livelier. That's because the major indicators they follow to determine whether the economy is in expansion or is contracting are sending off conflicting messages. One of the major indicators that the group follows is consistent with an economic recovery. One is unimpressive, but not strongly at odds with a recovery. The two remaining indicators imply that the economy may still be in recession.

This divergence has led committee members to express different views of where the economy is in the business cycle. Following the November employment report (but before last week's disappointing job loss) Robert Hall, who currently heads the Business Cycle Dating Committee, said that the report "makes it seem that the trough in employment will be around December. The trough in output was probably sometime in the summer. The committee will need to balance the mid-year date for output against the end-of-year date for employment."

Earlier this month Martin Feldstein, the former president of the NBER, focusing on the job market, said that "the current downturn is likely to last much longer than previous downturns ... We will be lucky to see the recession end in 2009."

If we take a look at the primary components of the economy that the NBER tracks to determine periods of recession, this uncertainty about the end of the recession becomes understandable. The NBER defines a recession as a "significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators." The four primary indicators that the group tracks are: Industrial Production, Real Manufacturing and Trade Sales, Real Personal Income Less Transfer Payments, and Nonfarm Payrolls. The graphs below show how each of these measures perform around the end of a recession, along with recent performance. The blue line is an average of the performance in each measure, beginning with the 1953 recession (where the data is available). The red line tracks the performance of each measure during this business cycle. The black line marks the end of each recession. For this analysis, we'll assume the recession ended last June, which seems to be the consensus of Wall Street analysts.



Industrial Production is the first of two indicators that measure the economy's output. Industrial Production rose .8 percent last month from the previous month and now has risen or remained unchanged for 5 consecutive months. The graph shows that while the contraction in production was more severe during the current recession (as all the indicators will show), the recent rise in output is in line with prior recoveries, though recent momentum has been uneven.



Manufacturing and Trade Sales send a similar message. This metric bottomed in June and has advanced modestly since then, although at a slower rate than during prior recoveries. The implication of measures that track manufacturing and output is that economic activity may have bottomed last summer, but with uneven progress compared with previous recoveries. Measures that track employment and household income are even less clear.



While the Real Personal Income Less Transfer Payments Index has stopped declining, it has been mostly moving sideways since April. Flat is better than declining, of course, but the lack of clear upward progress may make determining the end of the recession trickier. In its note announcing the trough of the 2001 recession, the committee remarked, "the NBER's practice has been that if economic activity is roughly flat at the end of a recession or expansion, the turning point is placed at the end of the flat period."

The weakest measure of the four primary indicators that the NBER considers is employment. The NBER's preference for tracking the health of the jobs market is to use Non-Farm Payrolls. The graph below shows how non-farm payrolls typically respond around the end of a recession, compared with the data's recent performance. As the graph shows, it is not typical for employment to contract this persistently during a new recovery. While there is sometimes a lag between the end of a recession and the beginning of an expansion, it tends to be quite small. Looking at the recessions prior to 2001, payrolls typically began expanding just one month after the trough of the economy.



Prior announcements by the business cycle dating committee may shed some light on their considerations of income and employment in determining the end of the current recession. In 2003 the group wrote, "Identifying the date of the trough involved weighing the evidence provided by the behavior of various indicators of economic activity. The estimates of real GDP É are only available quarterly.

Further these macroeconomic indicators are subject to substantial revisions and measurement error. For these reasons, the committee refers to a variety of monthly indicators to choose the exact months of peaks and troughs. It places particular emphasis on real personal income excluding transfers and on employment, since both measures reflect activity across the entire economy."

If the group still places "particular emphasis" on personal income and employment, it's difficult to confidently conclude that the recession is over. And even if it is, stock investors can be sensitive to continued weakness in the job market. The graph below shows the changes in non-farm payrolls around the 2001 recession, a period that also witnessed persistent flat or declining employment after the recession was officially declared over.



The current job market is closely tracking the employment situation in 2001. Here it's important to keep in mind that although the recession was declared to have ended in November of 2001, the bear market in stocks resumed after a brief period of strength, and ultimately continued for another 15 months. The bear market finally ended about 5 months prior to a sustained improvement in the job market.

Even if the recession is eventually determined to have ended last year, the NBER may take their time in dating it. In each of the last three recessions, because the primary metrics they follow were mixed, the group waited until GDP increased to a new high – or was forecasted to reach a new high in the current quarter – to declare that the recession had ended. With the signals clearly mixed here – manufacturing and output indicators rising and household income and job prospects moving sideways or contracting – the group may also take a wait-and-see approach. With real GDP still down more than 3 percent from its peak, it would go against precedent for the group to declare the end of a recession with the mixed signals that are currently in place.

By John Mauldin

John Mauldin, Best-Selling author and recognized financial expert, is also editor of the free Thoughts From the Frontline that goes to over 1 million readers each week. For more information on John or his FREE weekly economic letter go to: http://www.frontlinethoughts.com/learnmore

To subscribe to John Mauldin's E-Letter please click here:http://www.frontlinethoughts.com/subscribe.asp

Copyright 2010 John Mauldin. All Rights Reserved
John Mauldin is president of Millennium Wave Advisors, LLC, a registered investment advisor. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Investment recommendations may change and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. John Mauldin and/or the staff at Millennium Wave Advisors, LLC may or may not have investments in any funds cited above. Mauldin can be reached at 800-829-7273.

Disclaimer PAST RESULTS ARE NOT INDICATIVE OF FUTURE RESULTS. THERE IS RISK OF LOSS AS WELL AS THE OPPORTUNITY FOR GAIN WHEN INVESTING IN MANAGED FUNDS. WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER.

John Mauldin Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules