December 26, 2008

Latest Pajamas Media Column (‘Obama’s Race Against the Economy’) Is Up (UPDATES: Other Favorable Signs; Thoughts on NBER’s Recession Call)

It went up here yesterday.

The sub-headline is:

If a recovery begins too soon, a massive “stimulus” package might not be needed. Democrats consider that a bad thing.

It will go up tomorrow morning at BizzyBlog (link won’t work until then) when the blackout expires. Thanks to Instapundit for linking to it at PJM.


UPDATE: Since I submitted the column on Monday morning, other favorable signs have appeared.

First, the barrel price of oil has dropped below $36. Around here in Greater Cincinnati gas prices are already in the $1.40s at many stations, may drop into the high-$1.20s; the current average around here is $1.59 (go to for the latest info).

Second, mortgage applications are way up, per the Mortgage Bankers Association:

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending December 19, 2008.  The Market Composite Index, a measure of mortgage loan application volume, was 1245.4, an increase of 48.0 percent on a seasonally adjusted basis from 841.4 one week earlier. On an unadjusted basis, the Index increased 50.2 percent compared with the previous week and was up 124.6 percent compared with the same week one year earlier.

The Refinance Index increased 62.6 percent to 6758.6 from the previous week and the seasonally adjusted Purchase Index increased 10.6 percent to 316.5 from one week earlier.  The Conventional Purchase Index increased 17.7 percent while the Government Purchase Index (largely FHA) decreased 3.4 percent.

The four week moving average for the seasonally adjusted Market Index is up 28.8 percent. The four week moving average is up 4.5 percent for the seasonally adjusted Purchase Index, while this average is up 42.0 percent for the Refinance Index.

The refinance share of mortgage activity increased to 83.2 percent of total applications from 76.9 percent the previous week.

Tempering the enthusiasm, it could be that the year-over-year “ups” are from crater-like lows last year.

Third and most important, consumers bought a lot more stuff in November. No kidding. The news, almost universally headlined as bad, was really very good (Uncle Sam’s underlying news release is here):

The 0.6 percent drop in consumer spending followed an even larger 1 percent fall in October. However, the steep plunge in gasoline prices, which is actually good news for consumers, made the declines look worse. Excluding price changes, consumer spending would have dropped by 0.5 percent in October and actually risen by 0.6 percent in November. The November increase excluding inflation was the best showing in more than three years.

In sum, consumers spent less money on gas at the pump, and used some of their savings to buy other things, i.e., they bought a lot more stuff, the most they increased their buying of more stuff in three years!

That sort of escaped general notice, didn’t it? Geez people, all that matters is what the numbers look like in real (i.e., inflation-adjusted) terms.

“Ever-helpful” Martin Crutsinger of the Associated Press went on to say that:

Still, economists (unquoted, of course — Ed.) think the overall trend for consumer spending is down, given the problems facing the economy including the longest recession in a quarter century, a severe financial crisis that has cut off access to credit for millions of borrowers and a massive wave of job layoffs.

No Martin, what anyone would expect, based on November’s result, is that as long as gas prices keep dropping (as they are doing, down around here on a daily weighted-average basis of about 5%, and down about 10% in raw terms from Nov. 30), the data will probably show that consumers bought even more stuff in December, just in time for Christmas — as long as they objectively looked at their own situations and didn’t listen to you and other media mourners.

UPDATE 2: Y’know, I’m really tired of this “credit cutoff” mantra, which Crutsinger dutifully invoked. Where are the specific individual horror stories of people with good credit who have been out in the credit market lately who can say that they can’t get financing for a car or a home or retail credit? Until I see ‘em, I have no choice but to assume they don’t exist.

UPDATE 3: Oh, and one more thing — I’m not buying Crutsinger’s line that this is “the longest recession in a quarter century.” I still think that the NBER’s recession call earlier this month is “full of crap” — that is, premature and not supported by the evidence.

The evidence that the recession started in December 2007 is weak. Meanwhile, the evidence that a normal-people-defined recession (two consecutive negative quarters of GDP) started as the POR Economy really took hold in the third quarter, and continued into most of the fourth (to the point where the fourth will come in negative), borders on overwhelming.

Tentative but strong evidence that NBER is more than likely to be proven wrong, even by its own judgmental definition, is very simple: No “official” (cough, cough) recession since 1950 has ever entirely contained two consecutive individual quarters where economic growth was positive, as was the case in the first (+0.9%) and second quarters (+2.8%) of this year. Specifically:

  • July 1953 – May 1954 — Nope
  • August 1957 – April 1958 — Nope
  • April 1960 – Feb. 1961 — Nope
  • Dec. 1969 – Nov. 1970 — Nope
  • Nov. 1973 – March 1975 — Nope
  • Jan. 1980 – July 1980 — Nope
  • July 1981 – Nov. 1982 — Nope
  • July 1990 – March 1991 — Nope
  • March 2001 – Nov. 2001 — Nope (this is the recession that the NBER originally thought had started in the second half of 2000. Then they conveniently changed their minds).
  • But “somehow,” Dec. 2007 to present is “Yep.” (Update, as of July 5, 2013: After revisions, GDP now shows an annualized 1.8% decline in the first quarter followed by a 1.3% increase in the second quarter.)

Further according to Macroeconomic Advisers’ (MEA’s) Monthly GDP chart (saved at my host for future reference), after growing slightly in December 2007 and January 2008, followed by one month of significant contraction in February, the economy grew at an annualized rate of 2.1% from March through June of this year (at link — $11.825 trillion divided by $11.583 trillion, which is growth of 2.1%).

The NBER apparently has no doubt that a recession was in progress during that entire February-June period of 2.1%. What are these people smoking?

Unless Uncle Sam’s or MEA’s growth numbers get downwardly revised down the road (which NBER obviously doesn’t know; so why make the call?), their recession call is, as stated, “full of crap.” Even based on the data as it now exists, if the NBER wants to make the very shaky claim that a recession started in late 2007, it’s going to have to acknowledge that we got out of it in the Spring of 2008, and then went back in again.

Final proof will have to await other revised numbers that really shouldn’t be considered by anyone (because, for normal people, the absence or presence of a recession should entirely depend on the presence or absence of real economic growth), but that NBER nonetheless considers.



  1. Tom, as I have tried repeatedly to point out to you — to no avail, apparently — there’s more to a recession call than GDP. How you fail to grasp that is beyond me. I correctly forecast the NBER’s recession call here in November by simply looking at other metrics I know are important to them. GDP is only one of those metrics, and even that was goosed in Q2 by Bush’s ridiculous stimulus to nowhere. Please, I beg of you, stop with the GDP mantra.

    Comment by Invictus — December 26, 2008 @ 4:05 pm

  2. #1, Obviously your upper limit where you can still be in a recession with economic growth has now been benchmarked above 10%. Can you still be in a recession when growth is 20%? 30%? That’s obviously laughable to anyone who isn’t part of a group that has convinced itself that they’re oh so much smarter than everyone else.

    Unless the GDP numbers come down in revisions, the Dec. – June recession call is self-evident rubbish. If the numbers don’t change, they should have to back off to a double-dip at best of Dec.-Feb., followed by June or July through current.

    Comment by TBlumer — December 26, 2008 @ 4:28 pm

  3. I beg you to look at metrics other than GDP and you…immediately go right back to GDP! It’s amazing. What about employment, industrial production, real income, sales, aggregate hours worked? You know, the other stuff that NBER looks at that I correctly pointed to in making my assessment? You are revealing yourself to be little more than a partisan ideologue who has no use for the facts, which told the story very clearly.

    Comment by Invictus — December 26, 2008 @ 4:38 pm

  4. When growth is 10% for two months and 6.4% for four, I don’t care what other info says. It doesn’t matter. It’s that simple. Recession is about the presence or absence of economic growth, period.

    Anyone asking me or the American people to entertain the idea of a non-stop recession through 6.4% and 10.2% growth is insulting my and our intelligence. That includes you, and that includes NBER. If growth comes down, NBER may ultimately be proven right. If it doesn’t, they’re wrong, and you’re wrong.


    Speaking of clear, what’s clear is that NBER shouldn’t have been allowed to become the official definer of a recession some 30 years ago. IMO that has turned out to be, ultimately, a partisan act. Only blind partisans would call 6.4% growth over 4 months “noise.”

    We were doing fine with the normal people definition, and should never have left it. I was willing to concede the possibility of modest growth (1% or so, tops) still containing a recession. I’m not willing concede any more than that.

    Comment by TBlumer — December 26, 2008 @ 9:57 pm

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