June 29, 2009

MarketWatch and Rex Nutting Gets GDP History Wrong

Filed under: Economy,MSM Biz/Other Ignorance,Taxes & Government — Tom @ 12:30 am

nuttingr.jpgThose who have followed my posts for a while know that I have a particularly low regard for the work of MarketWatch’s Rex Nutting (pictured at right). It goes back to the pre-housing mess days when he tried to tell me that the the drop in housing prices would look like the 75%-plus drop in the NASDAQ from 2000-2002 or the collapse of Dutch tulip prices centuries ago. . As of April 2009, according the Federal Housing Finance Authority (FHFA), the successor to the Office of Housing Enterprise Oversight, the two-year drop in housing prices since the April 2007 peak has been 11.2% (PDF). Of course, give the Obama administration enough time, and who knows what it might do to housing values?

After the government’s “final” GDP report for the first quarter of 2009 on Thursday (future comprehensive revisions during the next two years could still ultimately change the outcome), it occurred to me that the reported annualized contraction of 5.5%, in combination with the annualized -6.3% logged in the fourth quarter of last year, might be some kind of record. I looked at historical info, and found that the most recent two-quarter dive is the worst since the same quarters of 1957-58. Then in seeing who might have written this up, I came across Nutting’s related report, which contains two statements that are patently untrue.

What’s remarkable is that one of his errors indicates that he or someone else at MarketWatch must have looked for the numbers in question and, along with his editors (if they exist), blown right by them.

Nutting’s erroneous statements in his Thursday MarketWatch report are the first two sentences (bolded by me) in the following paragraph:

The two-quarter contraction is the worst in more than 60 years. Since 1947, the economy had never contracted by more than 4% for two consecutive quarters. With a 0.5% drop in the third quarter of 2008, it’s the first time the economy has contracted for three consecutive quarters since 1975.

Both statements are demonstrably false. A review of 1947-2009, the entire period during which quarterly data has been reported (annual data goes back to 1930), shows that the two quarters I cited earlier came in at -4.2% and -10.4%:


The economy’s actual (not annualized) contraction during that six-month 1957-58 time period was 3.75%. The actual contraction during the most recent two quarters, after Thursday’s revision, has been “only” 3.0%.

How Rex Nutting or someone helping him could have looked at the government’s GDP history and missed the fact that both 1957-58 quarters in question had annualized contractions worse than 4% — something he specifically said has never happened since 1947 — is a mystery. Additionally, 4Q-1981 and 1Q-1982 had annualized contractions of over 4%, though their two-quarter combined actual (non-annualized) contraction of 2.87% is less than the two most recent quarters.

But there may be a psychological clue in Nutting’s sub-headline: “Trivial revisions can’t hide enormity of economic collapse.”

Perhaps Nutting and MarketWatch have conditioned themselves to believe this is the worst ever collapse already, and contrary data simply can’t penetrate their brains.

The current economic collapse isn’t the worst — yet. But again, give Barack Obama and Congress enough time, and they could very well get us there. Look what they’ve done since they started trashing the economic expectations of investors, businesspeople, and entrepreneurs a year ago.

Nutting reveals elsewhere in his report that predictions for the second quarter of this year are currently for another contraction, this time at an annualized rate of 1.5%. If that occurs, it will be the first time ever that four quarters of contraction in a row have occurred since the government began keeping quarterly data. It will be interesting to see if Nutting maintains his gloom or, given further progress into the Obama administration, whether he’ll try to put a happy face on things like so many of his business-press colleagues.

Cross-posted at NewsBusters.org.



  1. The two quarters combined weren’t worse than 4Q-2008 and 1Q-2009, but they were definitely below -4.0%. Thanks

    Comment by Networlddirectory — June 29, 2009 @ 6:42 am

  2. #1, yes they were, as seen in the post. Last time I checked, -3.75% is lower (i.e., worse) than -3.0%.

    Comment by TBlumer — June 29, 2009 @ 6:50 am

  3. Good stuff, Tom. I feel less gloomy about the economy, although the housing numbers in Calif. are considerably worse than the national average. Nice to have some perspective, as well as actual numbers.

    BTW, let’s talk about getting an AP watchdog together. You can reach me at my email address. I’m going to be in Columbus all of this week.

    Comment by Bradley J. Fikes — June 29, 2009 @ 7:23 am

  4. You’re right. I was wrong. I’d researched GDP and found that we hadn’t had two consecutive quarters with declines of more than 5% before. Somehow that was mistyped from my notes into my story as 4%. A clear mistake that I take full responsibility for.

    Now: A few other matters:
    1) Where did you get your psychology degree, Tom?
    2) You blasted me in 2006 because of my reports that the housing bubble could lead to a collapse in home prices. (I never said home prices would fall 75%, just that they were likely to fall.) You argued that there was no evidence of a bubble. (You had some crazy definition that would make it impossible to see a bubble until it was over… much too late to be of any value. I argued from analogy: That the rise in home sales and prices was unprecedented and looked eerily like previous bubbles.) Are you willing to admit you were wrong? Or do you still deny that housing and credit were in a bubble?

    3) In May 2008, I wrote a story explaining how a recession was possible even without a decline in GDP. It had to do with the actual accepted definition of a recession as determined by the National Bureau of Economic Research, the private group that dates the business cycles in the United States. You laughed at me and argued that there was no evidence of a recession. We know now that the NBER has declared the beginning of the recession as December 2007, five months after you insisted that anyone talking about a recession was wrong.
    Are you willing to admit that you were wrong about the recession?

    4) You are one of the most partisan commentators on the economy I’ve ever read (honestly, I don’t read you except when you attack my professional integrity). Partisanship is probably what your legions of readers want, so good for you!! When Bush was president, you had an excuse for every bad number (usually it was media bias), but now that Obama is president, you claim that it is the “business press” that puts a “happy face” on everything. I can be an amateur psychologist too: I think you are “projecting” your faults and biases onto others. You look at everything through a simplistic partisan lens and you assume that everyone else does too.

    Let’s recap: I was wrong about the history of GDP: The current downturn is actually more unusual than I wrote.
    Next you were wrong about the two most significant economic events of the past decade: The massive bubble in housing and credit, and the arrival of the worst recession in several generations.

    As a journalist, I appreciate any fact-checking on my articles. My intent is to tell the truth as well as I can, so thank you for pointing out my errors.
    But I gotta wonder why anyone would read your blog for your opinions on the economy. Your track record is deplorable, dude. Maybe it’s those red and blue lenses in your glasses.

    Comment by rex — June 29, 2009 @ 12:01 pm

  5. #4, Dearest Rex —

    That’s nice that you admit you’re wrong. You do this for a living. You have editors (in theory). It shouldn’t happen. Are you going to fix it (it hasn’t been fixed yet, and a correction somewhere else doesn’t cut it), or will you allow the blot on the integrity you repeatedly claim is slighted to remain?

    As to your points, here are answers:

    1) The school of hard knocks.

    2). At the time there was no evidence of a “bubble.” It took 2-3 more quarters for contrary evidence to develop. Even given that, what has transpired isn’t a national bubble. -11.2% is less than 1/6 of what NASDAQ dropped. So what was the point of bringing NASDAQ up? Someone looks foolish, and it isn’t me. And prices are back down to about where they were in …. 2005-2006. If it takes 20% for a bear stock market, it has to take more than 11.2% to constitute a nationwide bubble. It isn’t massive; it has been very tough in some states (actually, cities and neighborhoods within cities in certain states) that went overboard, though the current administration is working very hard to spread the misery.

    3) Though you were theoretically right that positive GDP growth might still occur during a recession, the second quarter 2008′s growth was too high to make any such claim credible without overwhelming contrary evidence. Yes, I’m saying that the “nonpartisan” NBER is, as of this moment, wrong. You can’t have a quarter of almost 3% growth — 0.3% below the median of the last 50 years(!) — and still claim recession without that HUGE stash of evidence, which they don’t have. The attempts to “discount” 2Q-2008 growth because there was less than $80 billion of stimulus money thrown into the economy is flat-out stupid. Absent hugely compelling evidence that doesn’t exist, the NBER’s call as of right now doesn’t pass the stench test, let alone the smell test.

    As shown here, barring new info, the NBER has not made anything resembling a compelling case, proving they don’t deserve the hallowed position they’ve expropriated from the dictionary, which tells me that normal people define a recession as two or more quarters of contraction.

    Until convincing evidence arrives (I doubt it ever will) and despite the NBER, the recession started in June of 2008. Since you don’t pay attention to me much, you might have missed that I called it within days after it began, and told readers exactly why it was happening; this is not a rear-view mirror revision. Maybe you should pay attention more.

    A real recession came on because for the first time in American history a political party took deliberate steps to jeopardize a recovering (from a very mild dip in 4Q07) economy. This recession, what I call the POR (Pelosi-Obama-Reid) Recession As Normal People Define It, is the worst in a long time, and it is THEIR doing. That it continues to be severe, and probably will linger longer than most expect, is also THEIR doing, a direct result of choosing historically ineffective, time-delayed, potentially fraud-riddled “stimulus” over historically proven tax cuts. If housing values fall further from here because the recession lingers, that will also be on them and their economically suicidal policies.

    4) My “job” as a blogger is to express an evidence-based point of view. That I do so pretty well is shown by your strident faux outrage.

    Your job, on the other hand, is to play it straight and get it right. I can’t opine as to your integrity, despite your continued hysterical shrieks that I am impugning it, but I can say that you all too often don’t do either job very well. When you fall short, you might see me ripping you again, so get used to it.

    Sometimes I think that if you were in Zimbabwe you’d still be buying the government’s line that it’s still all the colonial farmers’ fault.

    P.S. Here’s an interesting non sequitur —

    You are one of the most partisan commentators on the economy I’ve ever read (honestly, I don’t read you except when you attack my professional integrity). Partisanship is probably what your legions of readers want, so good for you!! When Bush was president, you had an excuse for every bad number (usually it was media bias), but now that Obama is president, you claim that it is the “business press” that puts a “happy face” on everything.

    Uh, if you don’t read me except on the few occasions I’ve written about you (I count 21 posts in almost three years out of probably 5,000, and the number of your reports I addressed is probably no more than 15 or so), how do you know?

    Gotcha, Mr. Integrity. :–>

    Comment by TBlumer — June 29, 2009 @ 1:11 pm

  6. Tom, as a point of interest, the idea that unemployment is a lagging indicator of recession was blown by the January 2008 ramp up of unemployment. Thus NBER had to declare the recession had begun otherwise their hard and fast rule would unravel. As I and others have pointed out the run up of unemployment had to do with the price of gasoline going over $2.50/gallon, not a recession. In the case of this recession, unemployment was the leading indicator because it was artificially created by the incompetence of congress restricting domestic energy production. A leading indicator is NOT a recession. Recession is the results of the cause, not visa versa. The order of economic decline started with Congress meddling where they had no business in energy supplies and compounded their meddling by legislating unsound loans.

    The idea the NBER is non partisan was destroyed by their own actions of violating the rules we used to date. As I pointed out, their use of wages would have told us the old Soviet Union was sound and healthy. We know it was not so therefore the NBER use of wages is a faulty measure of economic health.

    Furthermore, the reasons for unemployment changes running up to a recession and decreasing as it winds down are different from each other and not necessarily in from the reverse order.

    Comment by dscott — June 30, 2009 @ 12:42 pm

  7. #6, I changed your 2007 to 2008 because that’s what you’re referring to. If I’m wrong, let me know.

    You could also see the employment results of Jan.-June 2008 as hedging against the rhetoric of both candidates by careful businesses, who in net effect really took on as few new employees as they could get away with but weren’t proactively letting very many go either (relying on attrition, retirements, etc.). Then the June tsunami hit when Obama won the nomination. The rhetoric, i.e., threats, went off the chart, and the employment numbers started REALLY decaying.

    Comment by TBlumer — June 30, 2009 @ 1:44 pm

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