N+1 Declares Recession Over
In his latest missive to subscribers, editor of hip literary journal N+1 Keith Gessen wrote “First, we’re sending Issue 8 to the printer next week. The theme is ‘Recessional.’ While we were making it, the recession ended. This is the danger of being an extremely slow print publication.” Moe Tkacik, now of Clusterstock, responded yesterday with heavy snark:
Although the investment community is generally quick to discount the prognostications of literary novelists as what they call “lagging indicators,” one of the last of their kind to spend a considerable amount of time studying the financial services industry did in 1989 famously claim to have prophesied the Bernie Goetz incident, among other major market events, weeks before they occurred.
Perhaps to that end, Gessen goes on to announce that his magazine has launched a Twitter feed, which we will be checking periodically for housing starts forecasts, etc.
Joking aside, I think the odds are quite good that the NBER business cycle dating committee will end up vindicating Gessen. Today we learn that GDP shrunk at an annualized rate of one percent in the second quarter. But even though we got the data today, the second quarter ended in June. Nothing’s certain, but it’s perfectly reasonable to believe that three months from now we’ll learn that GDP growth was weakly positive in July-August-September of 2009 and that the recession did, in fact, end while Issue 8 of N+1 was at the printer.
33 Responses to “N+1 Declares Recession Over”
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July 31st, 2009 at 10:49 am
Note the NBER doesn’t follow a strick GDP rule, so it is possible they will date the end of the recession a little before or a little after a bottom in GDP. Generally, they will likely wait quite a bit before making their retrospective call.
That said, I agree it is odd to be so snarky about an offhand comment that may well be correct.
July 31st, 2009 at 10:50 am
Hey Moe, it’s called a leading indicator when it reflects changes in the underlying economy before GDP numbers do.
July 31st, 2009 at 10:54 am
Oh, and to summarize what I posted elsewhere in the comments here, the GDP report strongly suggests the stimulus is working as intended when it comes to GDP, but is not big enough due to unemployment being worse than expected. Generally, the ratio between increases in the unemployment rate and declines in GDP appears to be much worse this time than the historical, or even recent, average would have suggested.
July 31st, 2009 at 10:56 am
There used to be a pretty close connection between when the recession ended, and when people started having an easier time finding work. But nowadays, the lag time is pretty long.
Who cares when the recession ends if unemployment (by whichever U-number you care to use) is still increasing for some time afterward?
July 31st, 2009 at 11:00 am
What low-tech and DTM said. Who cares about the Dow or the GDP if unemployment keeps going up and real wages keep going down?
July 31st, 2009 at 11:01 am
Generally, the ratio between increases in the unemployment rate and declines in GDP appears to be much worse this time than the historical, or even recent, average would have suggested.
So in other words the size of the stimulus was determined in good faith. I never saw any reason to believe otherwise unlike some others.
July 31st, 2009 at 11:14 am
Who cares when the recession ends if unemployment (by whichever U-number you care to use) is still increasing for some time afterward?
Well if the recession didn’t end – say Obama hadn’t gotten any stimulus through, i.e. hung tough in a Chris Bowers manner – then it would be an even longer time until unemployment turned around. Seems obvious.
July 31st, 2009 at 11:17 am
n+1 = suck.
July 31st, 2009 at 11:18 am
Well, one thing it suggests is that we need to start thinking of GDP stimulus and job creation as two separate endeavors, and that the job creation part may need to be the permanent part, because this weakness in the job market is not looking like a temporary thing. It’s 2009 – we haven’t really seen a “tight” labor market in a decade, and the impact on wages is bad. That impact on wages is having a big impact on consumer demand and debt, which is going to leave us more vulnerable to recessions than before.
A Swedish course of using public policy to keep labor demand at or above a specific level seems a wise course to me.
(And while the stimulus’ size was designed in good faith, although strategically too low because they didn’t do the smart thing of coming in with 200% to get to 100%, I think the bigger problem was the emphasis on “shovel-ready” projects over creating jobs quickly.)
July 31st, 2009 at 11:19 am
I hate to say it, but Poptarts is right.
July 31st, 2009 at 11:19 am
Let me remind everyone that the GDP for Q1 was revised down from -5.5% to -6.4%. That is almost a whole point. This will be revised as well.
This was exactly what happened with the housing market all throughout 2008. Every month the news said it was looking better than expected, while they revised the previous month down to worse than expected. And so it never got better.
The CRE and option ARM collapse is here. October is going to be very nasty.
July 31st, 2009 at 11:20 am
What is “Uzbek for Turks” about? Uzbeks are a backwards and useless people. Turks aren’t.
July 31st, 2009 at 11:41 am
Well if the recession didn’t end – say Obama hadn’t gotten any stimulus through, i.e. hung tough in a Chris Bowers manner – then it would be an even longer time until unemployment turned around. Seems obvious.
I think we’re talking past each other. My point is, the state of “the economy” is increasingly disconnected in time from what’s happening in people’s lives. Things will be getting worse for your average American through most of next year, even with the stimulus, even if the recession’s already technically over.
To be blunt: it’s stupid to define these things in terms of what happens to corporations rather than what happens to people. It gives the Villagers – and too many politicians too – an excuse to pretend everything’s fine when it damned well isn’t.
As Jim Hightower used to say (and probably still does), we need a Doug Jones Average that tells us how the median American is doing. That would tell us a hell of a lot more than the Dow does.
July 31st, 2009 at 12:01 pm
Well, I put my dollar on the rececession ultimately “ending” in July.
Of course, that’s a little like saying that your drinking binge “ended” at 5AM. It’s still a miserable climb up out of that hole.
July 31st, 2009 at 12:19 pm
For whatever its worth, the NBER uses, IIRC, four monthly indicators: Payroll Employment, Industrial Production, Personal Income (less transfers) and Manufacturing and Trade Sales (or overall gross sales, I can never remember.) These are also the four coincident indicators in the conference board’s Coincident Economic Indicator index. The CEI was still decreasing in June, but had a positive second derivative. If CEI for July (which comes out on August 17, I think) is flat or positive, chances are the NBER will date the end of recession in July. This is also consistent with the Leading indicators – the Conference Board’s LEI troughs about 3 months before the CEI, and the LEI troughed in April.
July 31st, 2009 at 12:37 pm
N+1 is overly verbose, pretentious crap for people who take themselves way too seriously.
and since that last quater figure was just revised from 5-something-% up to 6.4%, I think it’s safe to assume that this recent 1% figure will itself be revised sharply upwards next quarter. so, no, recession not over.
July 31st, 2009 at 12:43 pm
What onceler said.
Matt, did you totally miss just how much they “readjusted” the numbers? Seriously, are you going out with a GS third year these days?
July 31st, 2009 at 1:16 pm
I’m with low-tech cyclist. My job and those of my 2 closest work friends are being threatened by steep state budget cuts. My husband’s and my 401(k)s, on the other hand, are recovering. However, that just makes us lucky, since most people rely far more on their jobs than their investments (most people don’t have many investments). The labor market does appear to have been permanently weakened, which is terrible for the vast majority of people, and the fact that the stimulus was too small means that lots of pro-cyclical state budget cuts are continuing and will do so for quite a while. The GDP increasingly reflects only the situations of the top 5-10% of earners, and has less and less relevance for everyone else.
July 31st, 2009 at 1:22 pm
Asset prices are being somewhat reflated (money is free right now) and the inventory cycle is alive and well.
So they produce bumps in GDP. But financial sector profits don’t produce jobs, they produce bonuses and dividends for millionaires. And inventory cycles are just that – cycles.
So where do the real jobs that ensure a healthy economy come from? I’m not hearing even a discussion of this.
July 31st, 2009 at 1:26 pm
Matt! Thank you for sticking up for us. For the record, though, the rest of the text—and not, like, way further down, but literally the next sentence after the sentence Moe quotes—is: “However, we don’t believe it [i.e. that the recession is over]. For example, here in Russia, they’ve halted the assembly line over at the Lada factory. This could mean no more Ladas for n+1 subscribers.” Etc. etc. I’m not in the US so I don’t have a good sense of it; in the USSR, this recession is going to last a while. –Keith
July 31st, 2009 at 1:27 pm
Ron – ahem.
(side note – what constitutes a “real job”? Because this is a crucial issue that often doesn’t get broken down as it needs to be)
July 31st, 2009 at 1:29 pm
There used to be a pretty close connection between when the recession ended, and when people started having an easier time finding work. But nowadays, the lag time is pretty long.
It may actually depend quite a bit on what measure of employment/unemployment you are looking at. Employment might actually start picking up pretty soon after production turns around. The problem is that the unemployment rate might continue to increase for quite a while even as employment is increasing.
That is because between population growth and increased labor force participation, we will need not just some growth in employment, but rather quite a bit of growth, to get the unemployment rate to start going down. In fact, a lot of that difference in the unemployment lag when comparing the recent past and farther back is actually just a function of the speed of the relevant recoveries once they started: the prior recoveries were faster, and a faster recovery will create fast enough employment growth to more quickly get the unemployment rate to head down, and vice-versa.
Unfortunately, it doesn’t seem particularly likely we will get a fast recovery this time. The only thing we can hope is that the unusually high ratio between employment and GDP changes works to our benefit on the other side as well, causing more employment growth than one might otherwise expect for a given increase in GDP. But I’m not holding my breath on that one–it may well be an asymmetric effect.
July 31st, 2009 at 1:33 pm
So where do the real jobs that ensure a healthy economy come from? I’m not hearing even a discussion of this.
My short answer would be a little less of a trade gap, a little more government spending, and a healthy amount of personal consumption following a repairing of househould balance sheets and a structural change in favor of a wider distribution of income. At least that is my hope.
July 31st, 2009 at 1:51 pm
Things will be getting worse for your average American through most of next year, even with the stimulus, even if the recession’s already technically over.
By the way, I’m not sure this is quite right. Real disposable income was up in the second quarter, by an annualized 3.2%. If you further assume the average American still has a job, then the average American is probably starting to do a little better right now.
Of course the problem is that likely way too many Americans will still be involuntarily out of work for quite a while, and that is a very serious social and economic issue. It just doesn’t necessarily translate directly to worsening conditions for the average person.
July 31st, 2009 at 1:58 pm
I recommend Steven Attewell’s blog:
http://realignmentproject.wordpress.com/2009/07/25/industriallabor-market-policy-think-swedish/
The US needs a jobs policy that corrects the erosion of the last 30 years.
The financial sector needs to shrink by half, private health insurance employment needs to disappear and housing construction will be low for many years. On top of that, manufacturing and infrastructure jobs have been declining. New jobs are needed to replace those.
Rebuilding our infrastructure, modernizing the electric grid, big public transit projects, green technologies, service jobs for low-level skilled and revitalization of manufacturing are worthy areas to explore.
The policy discussion needs to move in this direction.
July 31st, 2009 at 2:16 pm
The number is a comparison with the previous quarter. They revised the previous quarter down thus making this last quarter look better. This is how they have always done it and it makes some sense but why extrapolate the number to an annual rate then compare it to one quarter?
If you look at the sectors personal consumption and durable goods orders were down while they were up in the first quarter. Defense spending was up a whopping 10%. Of course the only thing growing in the economy is the stuff the government of the Fed subsidizes directly.
The GDP is actually only 4% smaller now than a year ago. Yet it felt like the world was ending. The XX% growth from 02 through 07 felt good only to those at the top, speculators, or those who extracted equity from their home. For the large majority of people it didn’t feel all that good. It will take spectacular luck for the economy 1 year from now to be larger than it was in June 08. It might be 2 years till that happens and only if we don’t get round two and we will if the Fed or the government does not continue subsidy. In the meantime income and assets are going to skew sharply to the top
July 31st, 2009 at 2:47 pm
In other words we have saved the system but the system is even more imbalanced. It was a choice between the devil and the deep blue sea so we chose the devil. Personified in GS.
The system by necessity is going to be more fragile than previously. Previous to every crisis since 87. The middle class will shrink and/or be defined down and the poverty rate is going to head back to 1950’s levels.
How this plays out politically is the over riding issue going forward. Job one is going to have to be setting the bottom adrift from health care as we are seeing now.
People working in DC for the Atlantic will do just fine.
July 31st, 2009 at 3:26 pm
But that’s the point – an uptick in economic activity, which we can see in the Dow and the GDP numbers, is what will bring down unemployment. We’re not talking about those measures going up without unemployment going down, just before unemployment goes down.
That’s a different issue. Real wages were stagnant or going down before this recession even hit. That a longer term, structural issue, and a very important one. It’s just a different issue than economic growth.
July 31st, 2009 at 3:26 pm
[...] Matthew Yglesias [...]
August 1st, 2009 at 10:02 am
That’s a different issue. Real wages were stagnant or going down before this recession even hit.
Were they, though?
What people are forgetting is that a lot of low-wage jobs are performed by immigrants who had even lower wages in their home countries.
If we only look at the wages of people who were here (or whose ancestors were) since, say, 1960, would wages really be stagnant? Alternately, if for everyone whose family came here since 1960, if we included the wages that they or their direct ancestors had in the mother country, would wages be stagnant?
August 2nd, 2009 at 1:17 pm
Because those are the only people who count?
Real wages for Americans have been stagnant. Period. Full stop.
August 2nd, 2009 at 5:28 pm
I can’t afford n+1 anymore. £10 an issue? Fuck that.
August 7th, 2009 at 9:16 am
[...] to 9.4 percent. Since employment is a lagging indicator, I think we can take this as a sign that Keith Gessen was right and Q2 of 2009 was the last quarter of [...]