American recession fears collide with reality

[Scott]

dreamstime.com

 

 

New York (CNN Business)The American economy didn't get the memo that it's supposed to already be in a recession.

The brutal GDP report released on July 28, showing the economy had contracted for a second quarter in a row, led some to insist the much-feared recession had already arrived.

 

And in some ways that makes sense: Since 1948, every period of back-to-back quarters of negative growth coincided with a recession.

But the recession-is-already-here argument has been severely undermined ....

 

https://www.cnn.com/2022/08/15/economy/recession-inflation-economy/index.html

 

 

 

 

[placeholder]

Some good news:

"U.S. industrial production rose 0.6% in July, the Federal Reserve reported Tuesday.

The gain was above Wall Street expectations of a 0.3% increase, according to a survey by The Wall Street Journal.

Output of the U.S. industrial sector was at an all-time high, eclipsing the level hit in 2018."

https://www.marketwatch.com/story/u-s-industrial-output-up-solidly-in-july-11660656466

[Credo]

2 hours ago, placeholder said:

Some good news:

"U.S. industrial production rose 0.6% in July, the Federal Reserve reported Tuesday.

The gain was above Wall Street expectations of a 0.3% increase, according to a survey by The Wall Street Journal.

Output of the U.S. industrial sector was at an all-time high, eclipsing the level hit in 2018."

https://www.marketwatch.com/story/u-s-industrial-output-up-solidly-in-july-11660656466

Thanks.  I think I'd rather be in a economic train driven by Biden than a Trump car being driven by Thelma and Louise.

 

[LarrySR]

I month chart. 
 

[EVENKEEL]

It'll be nice when my retirement fund is flush again.

[placeholder]

Here's some news which I think will delight most Americans regardless of their political views. At least I hope so.

U.S. Companies on Pace to Bring Home Record Number of Overseas Jobs

American companies are on pace to reshore, or return to the U.S., nearly 350,000 jobs this year, according to a report expected Friday from the Reshoring Initiative. That would be the highest number on record since the group began tracking the data in 2010. The Reshoring Initiative lobbies for bringing manufacturing jobs back to the U.S.

Over the past month, dozens of companies have said they had plans to build new factories or start new manufacturing projects in the U.S.

https://www.wsj.com/articles/u-s-companies-on-pace-to-bring-home-record-number-of-overseas-jobs-11660968061

 

Essential Product Industries Drive Job Announcements to Record High

In 2021 the private and federal push for domestic supply of essential goods propelled reshoring and foreign direct investment (FDI) job announcements to a record 261,000, bringing the total jobs announced since 2010 to over 1.3 million. For the second year in a row, reshoring exceeded FDI by 100%, continuing a recent trend not seen since 2013. Additionally, the number of companies reporting new reshoring and FDI set a new record of over 1,800 companies.

https://reshorenow.org/blog/reshoring-initiative-2021-data-report/#:~:text=In 2021 the private and,2010 to over 1.3 million.

[Hanaguma]

Gas was $2.10 a gallon in January 2021. Now it is $3.90 according to AAA.

 

S and P is up about 8% in the same period- hit a high of 4700 before coming down due to inflation. 

 

Inflation 1.4% in January 2021. Now 8%.

 

 

 

[placeholder]

4 minutes ago, Hanaguma said:

Gas was $2.10 a gallon in January 2021. Now it is $3.90 according to AAA.

 

S and P is up about 8% in the same period- hit a high of 4700 before coming down due to inflation. 

 

Inflation 1.4% in January 2021. Now 8%.

 

 

 

Now if gasoline prices and inflation had shot up elsewhere in the world, you wouldn't have much of a point. But since they didn't...oh wait a minute.

 

As for S&P. Anyone who mistakes the stock market as a reliable indicator of where the economy stands is seriously confused.

[Hanaguma]

25 minutes ago, placeholder said:

Now if gasoline prices and inflation had shot up elsewhere in the world, you wouldn't have much of a point. But since they didn't...oh wait a minute.

 

As for S&P. Anyone who mistakes the stock market as a reliable indicator of where the economy stands is seriously confused.

Where I live inflation has been steady 2%-2.5% for two years. Gas prices have not changed significantly either. 

[EVENKEEL]

17 minutes ago, placeholder said:

Now if gasoline prices and inflation had shot up elsewhere in the world, you wouldn't have much of a point. But since they didn't...oh wait a minute.

 

As for S&P. Anyone who mistakes the stock market as a reliable indicator of where the economy stands is seriously confused.

The Stock Market certainly is an indicator of where the economy is and where it's headed.

[placeholder]

1 hour ago, EVENKEEL said:

The Stock Market certainly is an indicator of where the economy is and where it's headed.

Is that what history shows? Really?

[sungod]

8 minutes ago, placeholder said:

Is that what history shows? Really?

Interested if there is any history of the stock market crashing, and the economy booming?

 

I'd love to read some links if you have them please.

[candide]

44 minutes ago, sungod said:

Interested if there is any history of the stock market crashing, and the economy booming?

 

I'd love to read some links if you have them please.

The fact that markets have crashed shows their (relative) inability to anticipate.

[candide]

50 minutes ago, sungod said:

Interested if there is any history of the stock market crashing, and the economy booming?

 

I'd love to read some links if you have them please.

Stock market level is often correlated with GDP growth, but not always.

https://www.economicsobservatory.com/does-the-stock-market-reflect-the-economy

[ozimoron]

1 hour ago, sungod said:

Interested if there is any history of the stock market crashing, and the economy booming?

 

I'd love to read some links if you have them please.

The GFC is arguably such a case. External (banking) factors caused a crisis in confidence in the capital market. It had nothing really to do with the GDP or economy in general. That view is supported by the V shaped recovery experienced almost immediately after a spectacular market crash. That contrasts the previous recession in 1980 where it took the economy many years to recover, stock market as well. Covid also arguably caused a boom in the stock market after a medium crash simultaneously with a pull back back in the economy. This is because the covid stimulus largely went to the big end of town who used the money to buy assets.

 

They aren't necessarily tied at all.

[placeholder]

There's a joke that the eminent economist Paul Samuelson came up with: "The stock market has predicted 9 of the last 5 recessions."

[placeholder]

7 hours ago, Hanaguma said:

Where I live inflation has been steady 2%-2.5% for two years. Gas prices have not changed significantly either. 

Well, for one thing, Japan massively subsidizes goods and services.

 

Ya think this might have something to do with the low gasoline prices?

 

Japan to quintuple gasoline subsidies in wake of $100 crude

https://asia.nikkei.com/Politics/Japan-to-quintuple-gasoline-subsidies-in-wake-of-100-crude

 

"Extensive government bond purchases by the Bank of Japan enabled the Japanese government to subsidise goods and services on a large scale. Estimates indicate that about 50 per cent of goods and services in the Japanese consumer basket — used to measure consumer price inflation — are subsidised. Since 1990, Japanese government subsidies have roughly quadrupled, reaching 130 trillion yen (US$98 billion) in 2021."

https://www.eastasiaforum.org/2022/08/12/japans-low-inflation-conundrum/

 

Also, by keeping interest rates very low, corporations can borrow cheaply. This keeps price increases down.

 

In addition Japan's chief threat for many years has been deflation. Japan's population is actually shrinking. So demand is low.

 

What makes Japan particularly interesting is that it has one of the highest debt to gdp ratios in the world. Conservatives claim that this is a surefire guarantee of hyperinflation. And yet...

 

Anyway, it sounds like a financial paradise living in a country that so blatantly violates some of the core beliefs of conservatives.

[ozimoron]

49 minutes ago, placeholder said:

What makes Japan particularly interesting is that it has one of the highest debt to gdp ratios in the world. Conservatives claim that this is a surefire guarantee of hyperinflation. And yet...

 

Anyway, it sounds like a financial paradise living in a country that so blatantly violates some of the core beliefs of conservatives.

There's more to that story. I don't know if it;s still true but the Japanese had very high levels of foreign debt but about the world's highest household savings. By converse, Australia (had) low foreign debt and among the highest household indebtedness in the world. This high household savings keeps the economy healthy despite the debt because those savings are largely invested.

[placeholder]

7 minutes ago, ozimoron said:

There's more to that story. I don't know if it;s still true but the Japanese had very high levels of foreign debt but about the world's highest household savings. By converse, Australia (had) low foreign debt and among the highest household indebtedness in the world. This high household savings keeps the economy healthy despite the debt because those savings are largely invested.

Well, if this source is to be believed, that's no longer true:

https://www.comparethemarket.com.au/home-loans/features/top-countries-in-debt/

[ozimoron]

1 hour ago, placeholder said:

Well, if this source is to be believed, that's no longer true:

I said Australia had high household debt and your chart supports that.

[placeholder]

5 minutes ago, ozimoron said:

I said Australia had high household debt and your chart supports that.

But you also said Japan had high household savings and it doesn't look like it. It's higher than the USA's.

[KanchanaburiGuy]

23 hours ago, EVENKEEL said:

The Stock Market certainly is an indicator of where the economy is and where it's headed.

Not really.

 

The stock market is a reflection of confidence........ (or lack thereof).......... and much less a reflection of performance or reality. 

 

Yes, performance plays some part in how confident people may be. But a quick look at the P/E Ratios..........(Price to Earnings Ratios)......... tells a very different story.

 

The "dotcom" bubble bursting is fairly instructive, here. We had dozens of companies with massive unwarranted P/E's........... because there had been huge investments in stock, in companies that had never made a dime! (Many of them never even produced a product! Lol)

 

The whole "dotcom" craze was based on CONFIDENCE........... not facts, not reality!

 

-----------------

 

In my view, the stock market is a quick and easy way to gauge what a certain class of people are thinking.............

 

...........but is not  a very good indicator of actual economic performance or outlook.

 

---------------

 

(Simply put, I've seen too many times when companies have shown nice profits, but missed their projections............ [their predictions!]........ by a small, small margin......... only to have their stocks plummet by 15 or 20% ! -------- Stock drops by 20% because they guessed wrong? .....Even though they still showed a good, solid profit? Pffft! Sorry, but this ain't anything like REALITY! ????)

 

 

 

[KanchanaburiGuy]

Hmmm.

 

Is a Recession/

Not a Recession?

 

Hmmm.

 

I took a look at how a "Recession" is determined, and who has the job of calling it that, "officially."

 

The National Bureau of Economic Research [NBER] is the answer.

 

(Here's a link to the White House's explanation of it, which I think is a little easier to understand than NBER's own explanation........

 

https://www.whitehouse.gov/cea/written-materials/2022/07/21/how-do-economists-determine-whether-the-economy-is-in-a-recession/  )

 

----------------

 

Hmmm. The more I read about how the NBER decides when a Recession has occurred (from the NBER website, not the White House's)............ honestly......... the more skeptical and suspicious I became!

 

I kept remembering what my father taught me as a late teenager: "If you can't dazzle 'em with brilliance, baffle 'em with b-llsh-t!"

 

(He never intended this as a lesson, but I took it as such, anyway! LOL!)

 

The more I read about what trends they follow; what they call a trough and a peak; how they determine when a trend has trough'd or peak'd; how they'll "restart the clock" based on a short, simple blip of inconsistency in either direction; and on and on...........

 

............the more it seemed like they were trying to "baffle us with b-llsh-it!"

 

---------------

 

............The more it seemed like the goal was not  to accurately decide when a Recession has  occurred..........

 

............but to minimize how often a Recession CAN BE declared!

 

And that suggests they are less interested in actual economic clarity....... and more interested in reducing how often their bosses have to report The Bad News to the American Public!

 

(Yeah, I'm talking politics! Except its the kind of politics that both sides can take advantage of, when it's their turn!)

 

-----------------

 

So here's my take.........

 

I'm going to stick with the "unofficial" 2 Quarters of Negative GDP Growth is a "Recession."

 

I'm going to stick with it because it is a Macro approach that simply  addresses where we were and where we are. 

 

Yes, there are all these metrics waving around......... moving up and down and all around.......... between the beginning and the end. But once we GET to the end, that's where we are!

 

And how can I justify taking this non-expert, contrarian view? Well, it's simply because among the 11 times a Recession has been declared since WWII.......... every single time........ there were also at least 2 consecutive quarters of Negative GDP! Every single time!

 

So, because GDP gives us a Macro view that inherently incorporates all those other swings and changes anyway.......... and because the Negative GDP growth almost perfectly mirrors the NBER's more complex standard for what they call a "Recession" anyway...........

 

I'm perfectly okay with that!

 

Lol

 

-----------------

-----------------

 

(I kind of think of it like speeding.

 

If the speed limit is 60MPH............ and a cop is able to prove that I covered 60 miles in less than 60 minutes.......... it really doesn't matter that I may have driven 30MPH part of the time and 90MPH part of the time! If I've driven 60 miles in less than 60 minutes, I MUST HAVE BEEN speeding! Lol

 

I think that's the same thing that looking at the Macro View....... Negative GDP performance...... does, too!)

 

Cheers!

 

 

[placeholder]

23 minutes ago, KanchanaburiGuy said:

And how can I justify taking this non-expert, contrarian view? Well, it's simply because among the 11 times a Recession has been declared since WWII.......... every single time........ there were also at least 2 consecutive quarters of Negative GDP! Every single time!

First, that's false. A recession was declared during the covid epidemic that lasted 2 months. 

 

[placeholder]

35 minutes ago, KanchanaburiGuy said:

Hmmm.

 

Is a Recession/

Not a Recession?

 

Hmmm.

 

I took a look at how a "Recession" is determined, and who has the job of calling it that, "officially."

 

The National Bureau of Economic Research [NBER] is the answer.

 

(Here's a link to the White House's explanation of it, which I think is a little easier to understand than NBER's own explanation........

 

https://www.whitehouse.gov/cea/written-materials/2022/07/21/how-do-economists-determine-whether-the-economy-is-in-a-recession/  )

 

----------------

 

Hmmm. The more I read about how the NBER decides when a Recession has occurred (from the NBER website, not the White House's)............ honestly......... the more skeptical and suspicious I became!

 

I kept remembering what my father taught me as a late teenager: "If you can't dazzle 'em with brilliance, baffle 'em with b-llsh-t!"

 

(He never intended this as a lesson, but I took it as such, anyway! LOL!)

 

The more I read about what trends they follow; what they call a trough and a peak; how they determine when a trend has trough'd or peak'd; how they'll "restart the clock" based on a short, simple blip of inconsistency in either direction; and on and on...........

 

............the more it seemed like they were trying to "baffle us with b-llsh-it!"

 

---------------

 

............The more it seemed like the goal was not  to accurately decide when a Recession has  occurred..........

 

............but to minimize how often a Recession CAN BE declared!

 

And that suggests they are less interested in actual economic clarity....... and more interested in reducing how often their bosses have to report The Bad News to the American Public!

 

(Yeah, I'm talking politics! Except its the kind of politics that both sides can take advantage of, when it's their turn!)

 

-----------------

 

So here's my take.........

 

I'm going to stick with the "unofficial" 2 Quarters of Negative GDP Growth is a "Recession."

 

I'm going to stick with it because it is a Macro approach that simply  addresses where we were and where we are. 

 

Yes, there are all these metrics waving around......... moving up and down and all around.......... between the beginning and the end. But once we GET to the end, that's where we are!

 

And how can I justify taking this non-expert, contrarian view? Well, it's simply because among the 11 times a Recession has been declared since WWII.......... every single time........ there were also at least 2 consecutive quarters of Negative GDP! Every single time!

 

So, because GDP gives us a Macro view that inherently incorporates all those other swings and changes anyway.......... and because the Negative GDP growth almost perfectly mirrors the NBER's more complex standard for what they call a "Recession" anyway...........

 

I'm perfectly okay with that!

 

Lol

 

-----------------

-----------------

 

(I kind of think of it like speeding.

 

If the speed limit is 60MPH............ and a cop is able to prove that I covered 60 miles in less than 60 minutes.......... it really doesn't matter that I may have driven 30MPH part of the time and 90MPH part of the time! If I've driven 60 miles in less than 60 minutes, I MUST HAVE BEEN speeding! Lol

 

I think that's the same thing that looking at the Macro View....... Negative GDP performance...... does, too!)

 

Cheers!

 

 

GDP is far from telling the whole story. In this case far far from it. Has there ever been a recession where job growth has been so supercharged? Ever? Maybe you think the job market is a technicality, but I don't think most folks would think so. GDP is an abraction, jobs are real.

 

In addition, while GDP was down by 0.9%, GNI was up by 3.1%. GNI is the counterpart of GDP. In other words GDP tells how much is produced and GNI tells how much is earned. Usually, the 2 are very closely balanced. For some reason, lately not.

 

We do know that in the first quarter GDP was down because Americans were buying so many goods from abroad. In the 2nd quarter it was down because retailers let their inventory run down. So, if you want to call it a recession, it's a recession with a huge asterisk.

[KanchanaburiGuy]

28 minutes ago, placeholder said:

First, that's false. A recession was declared during the covid epidemic that lasted 2 months. 

 

I'll accept that clarification with thanks, then wholeheartedly disagree with it!

 

Lol

 

A couple of bad months should never be called a "Recession." That's exactly why the "2 Quarters" standard is two quarters---specifically to prevent a couple of bad months being called a "Recession."

 

Now, those were two spectacularly bad months!

 

But the term "Recession" should describe a trend, not an incident. And a mere two months is an incident, not a trend.

 

After all, if two months can be a "Recession," why not a month? Why not two weeks? A week?

 

NEWS FLASH! "We had a Recession today, but tomorrow promises to be better!" Lol

 

If I were the NBER, I would say something like this...........

 

"The economic indicators we track all lined up in a way we could, technically speaking, call it a Recession. But because they were a reaction to outside forces and in no way indiciative of the health of our economy overall, we are NOT calling it a Recession. The affected time period was just too short lived. Severe, but short lived."

 

I believe: The NBER erred when they called those two months in 2020 "a Recession."

 

[KanchanaburiGuy]

1 hour ago, placeholder said:

In addition, while GDP was down by 0.9%, GNI was up by 3.1%. GNI is the counterpart of GDP. In other words GDP tells how much is produced and GNI tells how much is earned. Usually, the 2 are very closely balanced. For some reason, lately not.

I think the answer to "not lately" is this.....

 

Inflation.

 

But part of inflation is the chance/the necessity to sell existing inventory......... inventory purchased  at the old, lower prices........ at the new, higher selling prices. This creates additional income, without the need for additional production. But ultimately, that's temporary, fleeting.

 

A lot of people don't understand that when you sell something, you should sell it based on what it costs you to replace it, not based on what you paid for it!

 

(If the one on your shelf cost you $10, but the replacement for it will cost you $12, you should sell the $10 one at whatever price the $12 one will sell for. That's the only way you can get the $12 you need to pay for the new one!

 

A lot of people think this is "unfair;" that you're gouging people. But it is really just a sound business practice. People think the seller is making a bunch of "extra profit." But they're not! The "extra profit" is gone----It's  being used to buy the new, higher-priced replacement!)

 

So, when you have inflation and are only looking at a short time window.......... it can look like  GDI growth is exceeding GDP growth. But when you step back and look at it from a little farther away......... you'll probably see it all balances back out.

 

(Which is to say......... when you look at time-windows that are too small............ it may lead to making erroneous conclusions! Lol)

 

 

 

[placeholder]

3 hours ago, KanchanaburiGuy said:

I'll accept that clarification with thanks, then wholeheartedly disagree with it!

 

Lol

 

A couple of bad months should never be called a "Recession." That's exactly why the "2 Quarters" standard is two quarters---specifically to prevent a couple of bad months being called a "Recession."

 

Now, those were two spectacularly bad months!

 

But the term "Recession" should describe a trend, not an incident. And a mere two months is an incident, not a trend.

 

After all, if two months can be a "Recession," why not a month? Why not two weeks? A week?

 

NEWS FLASH! "We had a Recession today, but tomorrow promises to be better!" Lol

 

If I were the NBER, I would say something like this...........

 

"The economic indicators we track all lined up in a way we could, technically speaking, call it a Recession. But because they were a reaction to outside forces and in no way indiciative of the health of our economy overall, we are NOT calling it a Recession. The affected time period was just too short lived. Severe, but short lived."

 

I believe: The NBER erred when they called those two months in 2020 "a Recession."

 

 Clearly the NBER believes a recession should be determined not only by its effects as it occurred but by the damage it leaves behind. After those disastrous 2 months unemployment stayed every high at levels that would ordinarily be expected during a severe recession. In April of 2020 the unemployment rate zoomed up to 14.7%. In Sept of 2020 it would still be at 7.9%

Just because things started getting better after those 2 months, that doesn't mean things were good. Starting from a low baseline it's easy to improve.

And just because the economic decline was due to what economists call an "exogenous shock" whether that shock is a pandemic or war, that doesn't mean there isn't a recession underway.

What I would tell the economic experts at NBER is "Keep up the good work.".

[placeholder]

3 hours ago, KanchanaburiGuy said:

I think the answer to "not lately" is this.....

 

Inflation.

 

But part of inflation is the chance/the necessity to sell existing inventory......... inventory purchased  at the old, lower prices........ at the new, higher selling prices. This creates additional income, without the need for additional production. But ultimately, that's temporary, fleeting.

 

A lot of people don't understand that when you sell something, you should sell it based on what it costs you to replace it, not based on what you paid for it!

 

(If the one on your shelf cost you $10, but the replacement for it will cost you $12, you should sell the $10 one at whatever price the $12 one will sell for. That's the only way you can get the $12 you need to pay for the new one!

 

A lot of people think this is "unfair;" that you're gouging people. But it is really just a sound business practice. People think the seller is making a bunch of "extra profit." But they're not! The "extra profit" is gone----It's  being used to buy the new, higher-priced replacement!)

 

So, when you have inflation and are only looking at a short time window.......... it can look like  GDI growth is exceeding GDP growth. But when you step back and look at it from a little farther away......... you'll probably see it all balances back out.

 

(Which is to say......... when you look at time-windows that are too small............ it may lead to making erroneous conclusions! Lol)

 

 

 

No. The way GDP is determined for the price of the goods or services someone paid for them.at, not the difference between the price a vendor paid for them vs the price the buyer paid.  The GNI would be determined by the payment the vendor received. They should be in balance.

Neither of these 2 statistics references the difference between what a vendor paid for something and what a vendor sold it for.

[riclag]

On 8/21/2022 at 1:19 PM, EVENKEEL said:

The Stock Market certainly is an indicator of where the economy is and where it's headed.

The picture(gas pump) at the top of the story says a lot too.But American voters will be  voting on the dreadful economy imop
Payback comith right soon in November 

74% of voters say country is on the wrong track, Biden’s job approval stays low:
https://nypost.com/2022/08/21/74-of-voters-say-country-is-on-the-wrong-track-bidens-job-approval-stays-low-poll/