It's easy to fear the worst. Why should we expect conditions to improve? Things were getting worse for years -- for decades, really -- and then there was the crisis and things got even more worse. Why should we expect anything to get better now?
"In practice," a friend says, we assume that "the existing state of affairs will continue indefinitely, except in so far as we have specific reasons to expect a change." And all our specific reasons have been for the worse.
So it is easy enough to see why many articles about the economy still predict recession or continued slow growth -- and why people still read those articles.
That's fine. Prediction is only a game, anyway. Nobody knows what will happen tomorrow. I don't know what's going to happen fifteen minutes from now.
But I've been looking at graphs for a long time. And I think this is the time that I have to say it looks like something is happening. Repeating the pattern of the 1990s, the debt-per-dollar graph has fallen and is now bottoming out. It looks to be getting ready to go up again, and to bring with it a spate of good years -- again, repeating the pattern of the 1990s.
The household debt service payments graph tells precisely the same story.
So I have to say something about all this. I have to say, I expect that we will have some pretty good years, just as we had in the latter 1990s. That's what my graphs are telling me.
Today I want to look at the monthly GDP data from Macroeconomic Advisers. I have their data thru May now:
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| Graph #1: Monthly RGDP since Jan 2009 with an Unresponsive H-P Constant |
Here is the same graph with a more responsive Hodrick-Prescott:
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| Graph #2: Monthly RGDP since Jan 2009 using a More Responsive H-P Constant |
Look at the red line. Assume it shows what the blue line is trying to show us.
Look at the red line. It peaks in mid-2010 during our initial recovery from the global financial crisis and recession of 2009. There is another peak in mid-2012, and another in late 2014.
Judging by the red line, the 2012 peak is lowest of the three. The 2014 peak is approximately as high as the 2010 peak -- and maybe twice as long. That is significant.
Now consider the lows. The low of 2013 is lower than the low of 2011. So it is pretty easy to think we might see a trend of decline. If two points make a trend, I mean.
You might point out that the most recent part of the red line is heading downhill, heading for a third low point. Fair enough. But the current low is not as low as the 2013 low, and looks to be not even as low as the 2011 low. This low is going to be higher than those other two. That says uptrend.
Those other two lows were not recessions, by the way.
And don't forget, Hodrick-Prescott lines have "endpoint" problems. Our data ends in May of 2016, and our red line is overly influenced by the data near that date. I'm saying the end of the red line is lower than is justified by the data, because of the endpoint problem. So the current low is not going to be very low at all, I expect.
I expect the red line to bottom out about where it is now on the graph, then to go up about as much as it did from the 2013 low to the late 2014 peak -- about 1½ percentage points above the 2.0 level. Just by eye. I'm saying the red line will peak next at around a 3.5% annual growth rate. Then higher after that, my graphs tell me. And no recession is in sight. Not for several years.
But, you know, I don't make predictions.
5 comments:
"Kudlow pulls the 1.2% growth number out his ass, instead of looking at it in context."
That may be the funniest line I ever wrote!
From What in the World is the Federal Reserve Supposed to Do Now? by Taylor Tepper, 5 August 2016:
“On the whole, this morning’s strong July employment report indicates that labor market health remains intact and, in our view, reduces near-term recession risk for the U.S. economy,” writes Barclays’ Jesse Hurwitz.
Less chance of recession, Hurwitz says.
Less chance of recession, Tepper reports.
Is anyone still predicting recession? Yes, in fact, but less chance of it.
From As Heavy-Truck Sales Go, So Goes the Economy (28 Sept 2016):
In August, domestic heavy-truck sales fell 29 percent from the same period of 2015, the weakest month in well over three years... Weak truck sales have sometimes given false signals about a recession over the last 30-odd years. But the sheer size of this August’s drop looks different. We’ve never seen a plunge this steep that didn’t foretell a recession.
We shall see.
And from Warren Mosler's Restaurant Performance Index, Bank loans:
"Big move down into contraction as the trend continues"
No recession yet :)
Back in February 2016, Jeroen Blokland observed the expectations of recession:
"Investors spooked as the 'R word' is popping up everywhere."
"Over the last couple of days equity markets have intensified their downward trend. Worries about China and falling oil prices are now accompanied by another major issue, the (increasing) possibility of a U.S. recession."
Blokland himself did not expect recession... But he didexpect a slowdown -- "The charts point to slowing growth, not a recession" -- which brings us around to vigor.
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