February 4, 2009

Quickie Econ Roundup (Also, Notes on the Timing of the Recession)

Filed under: Economy,MSM Biz/Other Bias,Taxes & Government — Tom @ 1:09 pm

The three reports of the past three days have been these:

  • The Institute for Supply Management’s (ISM’s) Manufacturing Index — It came in at 35.6% on Monday, up from 32.9% in December. That handily beat expectations of 33.0%, but is still solidly in contraction mode, which is any reading below 50%.
  • ADP’s employment report on the nonfarm private job situtation earlier today showed that a seasonally adjusted 522,000 jobs were lost in January. December’s -693,000 was revised to -659,000.
  • ISM’s Non Manufacturing Index (NMI – referred to as the Services Report by some) — It came in at 42.9%, up from 40.1% in December, beating expectations that it would decline to 39.0%. That’s obviously still in contraction mode, but a pretty decent move in the right direction. The Forex link starts with a statement that you will likely not see in Old Media stories: “A key index of the U.S. non-manufacturing sector surprised with an increase today, marking its second straight jump and perhaps signaling that the worst could be over for the world’s largest economy.” If that’s the case, explain to me why the stimulus package, which anyone with a brain knows isn’t going to influence the economy for many months after its passage, is necessary.

Also, the ISM’s manufacturing report begins with a statement that I’ve been meaning to comment on for several months:

Economic activity in the manufacturing sector failed to grow in January for the 12th consecutive month, and the overall economy contracted for the fourth consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business®.

Seriously, all you people who worship at the altar of the National Bureau of Economic Research (NBER, which would include virtually everyone in Old Media: Why are the economy-participating folks who report to ISM every month presumptively wrong when they say that a contraction has only been happening for four months (it needs to be six months before it’s a recession as normal people define it)? And why are the academic (and in my opinion Democratic Party-biased) pinheads at NBER, who say that we’ve been in recession since December 2007 — even though the first and second quarters of 2008 had GDP growth of 0.9% and 2.8%, respectively — presumptively right?

If ADP’s announcement reflects the employment news coming from Uncle Sam’s Bureau of Economic Analysis on Friday, seasonally adjusted job losses during the past five months, which would include four months of the ISM-recognized contraction, plus the preceding month of September, will be about 2.5 million (thankfully, we aren’t losing 500 million jobs a month as Nancy Pelosi apparently believes).

Job losses during the nine other months NBER wants us to believe we spent in recession were about 600,000 (less than 70,000 a month). That’s clearly unacceptable, but given that economic growth was occurring, it fails to convincingly tip the balance towards recession.

The “bad news” that people don’t get is that because of ongoing productivity improvements, an economy generally has to grow at an annual rate of 1.5% or more to keep up with population growth and to avoid having employment suffer. 1.5% growth is not acceptable, but it’s not recessionary either. First- and second-quarter 2008 growth averaged 1.85%. The burden of proof is on NBER to prove that this period was still somehow recessionary. In my opinion, it has not met that burden.

The ISMers are much closer to being right than NBER, and the recession didn’t really begin until June or July of last year, when the architects of the POR Economy — Nancy Pelosi, Barack Obama, Harry Reid, and their party — started working their “magic” and sent third-quarter GDP growth into negative territory. Then things went really sour when the Democratic Party-driven decades-in-the-making CRA-, Fred-, and Fan-driven mortgage lending chickens came home to roost.


UPDATE: Sure the Pelosi gaffe is mostly trivial (but why don’t these people catch themselves when they say these things?). But Instapundit’s point is dead-on — “….. if Sarah Palin had said this, it would be taken as proof that she was unsuited for national politics.”

UPDATE 2: The closely followed BizzyBlog Blogads Index is at its highest level (3 in the top frame) since it began a couple of years ago. (That must mean that recovery is just around the corner – ha). Thanks to the Blogads folks for soldiering on through difficult times to achieve this level of placement. I strongly encourage clickthroughs to see what the advertisers have to offer.

UPDATE 3: Perhaps the nascent recovery indicated in the NMI is why Barack Obama is ramping up the rhetoric (“Obama: Catastrophe coming if Congress doesn’t act”). He doesn’t want people to realize that things might be getting better, because the already false “urgency” of the so-called “stimulus” bill will be further unmasked.



  1. If it helps, here are a couple of posts that go to “why December 2007?”:

    The Third Leg of the Recession – Did the minimum wage increase of 2007 accelerate the arrival of the recession?

    Taking the Temperature of U.S. GDP – The first real indication that the using a variation of the common “two negative quarters” definition might put the recession start in 2007Q4 or 2008Q1.

    On the subject of the first post, I hope you haven’t missed our Economic Detective series (conclusion here!)

    Comment by Ironman — February 4, 2009 @ 3:08 pm

  2. #1, those are well done.

    Supplemental point: if a government action like min wage causes a traceable employment hiccup in a relatively small group of people, does that mean you should ignore it when evaluating overall employment results for the purposes of determining whether a recession is going on?

    I say yes. The action didn’t change the economy, it only changed the employment prospects of a given small group of people.

    Comment by TBlumer — February 4, 2009 @ 11:11 pm

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