Frankel, Dimon Say Recession Has Arrived

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A very good (as usual) post by Jeff Frankel takes issue with Council of Economic Advisers chair Ed Lazear’s assertion that the economy is not in recession:

It is true that the Commerce Department BEA’s advanced estimate of first-quarter GDP growth was still above zero (+0.6%). But there are three reasons not to take this too seriously.

(1) Revisions in these numbers are usually substantial, so the final number could easily turn out to be negative — or twice as high.

(2) Even if the +0.6% number were to hold up, it can be entirely accounted for by measured inventory investment. In other words, real final demand fell rather than rose in the first quarter. It is plain that this inventory accumulation was not the outcome of deliberate decisions by bullish firms to add to their inventories in anticipation of a booming economy. Rather it was almost certainly unintended inventory accumulation, as goods sat unsold on store shelves and in warehouses. This overhang makes it more likely that inventory accumulation will be negative in the 2nd quarter. (Admittedly, rising exports from the weak dollar and rising consumption from the tax rebate checks could outweigh that particular factor, and we could scrape along the ground for another quarter at near-zero growth).

(3) As Martin Feldstein has been pointing out, it is a misinterpretation of the GDP statistics to say that growth remained positive within the first quarter. Rather GDP for QI as a whole was estimated to have been 0.6% higher as compared to QIV as a whole. The Commerce Department does not report monthly GDP estimates, but MacroAdvisers does, and these data suggest that monthly GDP has been declining since January.

There are other reasons as well to consider it likely that a recession started in the first quarter. The NBER Business Cycle Dating Committee, which declares when recessions start, looks at lots of data. But the most important information, alongside GDP, is the jobs data from the Bureau of Labor Statistics. Employment, like GDP, offers a comprehensive measure across the economy, but it has the advantage of being available monthly and with shorter lags. The employment data suggest that the recession may have started in January.

And Jamie Dimon has joined the fold (hat tip reader RK via Calculated Risk), Note the CR post picked up on an earlier Reuters headline, which was that the recession was “just starting”; the current version omits that quote and instead emphasizes that the recession could be severd:

JPMorgan Chase & Co Chairman and Chief Executive Jamie Dimon on Monday told bank investors that while the current credit market crunch may soon be over, the U.S. economy could still face a deep and extended recession.

The slump in mortgage and corporate loan markets could bottom out this year…Yet the economy may face a longer-term challenge even as financial markets begin to function again, the “slower burn” of a recession that may rival the severity of the 1982 contraction, he said.

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