summitV I E W capital December 2008. There seems to be plenty of economists willing to state the recession ended in June/July of 2009, but still no announcement from the NBER. This is not summitVIEW an ominous sign for continued economic turmoil by itself. The NBER announcement typically lags the actual event by around a year. The end of the 2001 recession was not declared until more than a year and a half The NBER examines different economy- wide measures of economic activity to 1 determine turning points in the business cycle. According to their paper  declaring the trough (and hence beginning of Is that two scoops or just Sept economic expansion) of the 2001 recession: one big scoop? “In determining whether a recession has occurred and in identifying the 2010 approximate dates of the peak and the trough, the committee therefore placesA Double-Dip Recession in considerable weight on the estimatesthe United States? of real GDP issued by the Bureau of Economic Analysis of the US DepartmentWith each passing week of August, there are more of Commerce. The traditional role ofheadlines stacking up that indicate the US Economic the committee is to maintain a monthlyRecovery isn’t quite as rosy as was being projected chronology, however, and the BEA’sjust a few short months ago. Rising jobless claims, real GDP estimates are only availableawful housing numbers, and slowing Leading quarterly. For this reason the committeeEconomic Indicator Indices have all been part of the refers to a variety of monthly indicatorspicture. With these disappointing economic prints choose the exact months of peaks andcomes a growing chorus of voices in the Mainstream troughs.Media questioning whether the US is headed back It places particular emphasis on twointo recession. It likely is not. What is the bad news monthly measures of activity across theanswer? It is likely that the US never emerged from entire economy: (1) personal income less transfer payments, in real terms and (2)null and void. employment. “The most glaring evidence supporting this According to a paper released this Augustdepressing claim is the fact that the National Bureau by the Richmond Federal Reserve, one of the reasons the NBER was slower to declare an end for the 2001 downturn was the poor performance of employment inreally matters is “conditions on the ground,” there that recovery. The paper also suggests that the committee “waited until manyyet to be declared. broad indicators had surpassed their pre- recession peaks, which has not happened in this recession for any of the seriesis that the NBER is just slow. It did not declare the examined here.”December 2007 start of the recent recession until see disclaimer on last page Pay attention to that last sentence, because it matters.
capital It is worth examining some of the same data seriessummitVIEW the NBER uses to get a clearer picture of when they might declare an end to the recession, and what date that declaration will pinpoint. GDP is cited as the most important factor2 in the NBER methodology, so it is a good placeSept 2010 to start. The BEA has been reporting positive annualized growth rates in GDP each quarter since Q3 2009. The problem is, the growth hasn’t been big enough to bring the US economy back up to the same size it was when the recession hit. Examining the dollar level of GDP, in February, 2008 at 9,736.0, fell to a cycle low the US Economy topped out at 13,363.5 billion of 9,091.2 in October, 2009 and was at 9,217.8 in Q4 2007, and declined to a low of 12,810.0 in the most recent report of June, 2010. This is billion in Q2 2009, when the steady, positive more than 5% off the high, and not showing any meaningful sign of growth, although the near term back to 13,216.5 billion for Q2 2010, which is still below the peak.  are similarly uninspiring. The unemployment is scheduled to be released on August 27th, and rate in December 2007 as the economy headed most expectations are for a further downward into the downturn was 5.0% (after creeping up from an average closer to 4.6% for the year). As of July 2010, it stood at 9.5% after reaching a high of in the recent volatile trading days. (Update: 2nd 10.1% in October 2008. Unemployment may be Quarter 2010 growth revised from 2.4% down to one of the more troubling statistics the NBER will 1.6%). confront when examining the current economic climate. While it has leveled off, it certainly hasn’t What story do the Personal Income statistics shown any sign of improving, and with no job tell? Judging from straight personal income, growth, there really can’t be any meaningful the USA is back on track to prosperity, with growth in personal income. Following the trend the highest personal income reported to date of a “jobless recovery” that was set by the 2001 in the 2nd quarter 2010 report. However, the recession, the awful unemployment numbers will relevant statistic to the NBER committee is likely persist for a long time. There is talk of a Personal Income LESS Transfer Payments. structural shift in the US economy in which high Transfer payments are things like social security unemployment becomes normal. hands without a reciprocal exchange of goods So, with all three top measures of economic health and services. This monthly measure peaked used by the NBER below their peaks of 2007, will
there be any forthcoming announcement from Quotes:the committee? If the committee holds off onany announcements until these measure improve Billions spent on housingto pre-recession levels, it is highly unlikely wewill see any proclamation from them this year, tax breaks accomplish little, experts say summitVIEWand maybe not even next year. This is not evenaccounting for other measures typically taken asindicators for the broader economy: Consumer The U.S. government spent $230 billion last yearSentiment Survey, ISM Manufacturer’s Index, to support home ownership but accomplishedSmall Business Optimism Survey, etc. A hint: almost nothing beyond putting money into thenone of them look very rosy right now, not pocket of the rich, experts told a conference oncompared to pre-recession levels, and certainly housing policy. The rate of home ownershipnot compared to other periods of economic in the U.S. is about the same as in Canada andrecovery. less than that of Australia, Britain, Ireland and Spain, which all offer little in the way of home 3So what? Who really cares what the NBER ownership tax breaks. The Urban Institute saidcommittee says if all they do is apply labels to tax incentives for U.S. mortgage holders arewhat actually happens in the economy? It is Sept 2010 worth $5,459 a year to people making more thanmore important for individuals to understand $250,000 but only $91 a year to those earning lessthe basics of what is happening and make than $40,000.investment decisions accordingly. Insteadof breathlessly speculating on the eventual USA TODAY (18 Aug.)announcement, it is useful to understand thatthe economy certainly does not appear to be ina stable recovery, and is likely to face further Bankruptcies in the U.S. reach the highest level(and thus all important Consumer Consumption)and GDP are all sluggish. since 2005With so many areas of the economy never really increased to their highest level since theHousing), and the rest of the economy limping last quarter of 2005. Business and personalalong with massive government stimulus bankruptcies spiked then because a law revisionand inventory restocking, it would be more that tightens the procedure was about to comeaccurate to view the downturn as one, drawnout recession. Even the NBER itself does not the looser process, according to The Economist.believe in the concept of the double dip. It willeither classify as two discrete recessions, or onelong recession. Given the tepid recovery and ended June 30 compared with the same period apersistent weakness in key economic sectors, one year earlier.long recession seems much more accurate. The Economist (18 Aug.) http://www.nber.org/cycles/july2003/recessions.pdf A Broken Record http://www.richmondfed.org/publications/research/economic_ This is going to sound like a broken record butbrief/2010/pdf/eb_10-08.pdf it took a decade of parabolic credit growth to Figures are in Chained 2005 dollars, and are from the Bureau of Economic get the U.S. economy into this deleveragingAnalysis website: http://www.bea.gov/ towards bringing household debt into historical Figures are in Chained 2005 dollars,and are from the St. Louis Federal realignment with the level of assets and income toReserve website: http://research.stlouisfed.org/fred2/categories/110 support the prevailing level of liabilities. We are talking about $6 trillion of excess debt that has to From the St. Louis Fed: http://research.stlouisfed.org/fred2/data/ be extinguished, either by paying it down or byUNRATE.txt walking away from it (or having it socialized). David Rosenberg, Gluskin She & Associates, Inc.,Disclaimer: All material presented herein is believed to be reliable but we cannot attest to its August 26, 2010accuracy. Neither the information nor any opinion expressed constitutes a solicitation by us for thepurchase or sale of any securities. www.summitcreekcapital.com