How we will know when a recession is coming?(brookings.edu)
brookings.edu
How we will know when a recession is coming?
https://www.brookings.edu/blog/up-front/2019/06/06/how-will-we-know-when-a-recession-is-coming/
127 comments
There's a name for the phenomenon, Goodhart's Law [1]. Generally, once a metric is used for decision making, it no longer reflects the phenomenon that it is attempting to measure.
Making it much more complicated is the fact that methodologies vary from year to year, and are often created by averaging data from a number of different sources. I've become fairly convinced that almost all macroeconomic measures are so flawed that using them in almost any dimension (across time, between countries) is useless. It may be that everyone involved in creating the overall measures is acting in good faith, rather than some politically motivated conspiracy, but still in aggregate create data that does not reflect reality in a useful way.
The exceptions tend to be metrics that require skin in the game to shift -- the yield curve inversion or S&P500 index, for example, are fairly real, since shifting them would cost a ton of money.
[1] https://en.wikipedia.org/wiki/Goodhart%27s_law
Making it much more complicated is the fact that methodologies vary from year to year, and are often created by averaging data from a number of different sources. I've become fairly convinced that almost all macroeconomic measures are so flawed that using them in almost any dimension (across time, between countries) is useless. It may be that everyone involved in creating the overall measures is acting in good faith, rather than some politically motivated conspiracy, but still in aggregate create data that does not reflect reality in a useful way.
The exceptions tend to be metrics that require skin in the game to shift -- the yield curve inversion or S&P500 index, for example, are fairly real, since shifting them would cost a ton of money.
[1] https://en.wikipedia.org/wiki/Goodhart%27s_law
> The exceptions tend to be metrics that require skin in the game to shift -- the yield curve inversion or S&P500 index
I agree with you on the S&P500, but isn't the yield curve fairly easily manipulated by the Federal Reserve and their rate setting activities?
I agree with you on the S&P500, but isn't the yield curve fairly easily manipulated by the Federal Reserve and their rate setting activities?
I think the idea is that would impact more than just the politics, it would actually impact the rate of interest banks and others pay, so there is incentive to disregard the politics at least to some degree.
The unemployment rate is definitely not the whole picture and is kind of a BS metric.
I think you'll find the Labor Force Partcipation Rate gives a more accurate assessment of what you're looking for.
"Make-Believe America: Why the US Unemployment Rate Doesn’t Indicate Economic Recovery"
https://www.foreignpolicyjournal.com/2018/03/08/make-believe...
I think you'll find the Labor Force Partcipation Rate gives a more accurate assessment of what you're looking for.
"Make-Believe America: Why the US Unemployment Rate Doesn’t Indicate Economic Recovery"
https://www.foreignpolicyjournal.com/2018/03/08/make-believe...
I'd go even further and say the 25-54 year old workforce participation rate is a better metric, since the regular workforce participation rate is influenced by demographic changes (i.e. the baby boomers retiring).
https://fred.stlouisfed.org/series/LNS11300060
https://fred.stlouisfed.org/series/LNS11300060
The markets watch the BLS numbers like crazy and compare them to estimates from private sources that come from a wide range of methodologies. Frequently the big moves in the markets are not triggered by the bare numbers but from the difference between the expectation and the numbers.
If there was a systematic fudging of those numbers lots and lots of people would notice.
If there was a systematic fudging of those numbers lots and lots of people would notice.
You're right, but what if revealing the discrepancies wouldn't be beneficial to the company? Many people knew about the subprime mortgages before the 2008 recession and no-one came forward, although some shorted it.
I worked in that industry during that time period and its just not true that no one came forward. As early as 2003 Warren Buffett straight up called them “weapons of financial destruction”. In 2005, the World Bank released a report suggesting that the derivatives the banks were holding could cause a financial crisis.
I remember the day the yield curve inverted in 2005 because I was working for a company that made risk assessment software for MBS. Our call center blew up as the reports started showing how risky balance sheets were.
It’s a nice story that Michael Lewis writes in “The Big Short” about how only a few people made money shorting the crisis but a) its largely not true and b) its more the fact that shorting isn’t nearly as easy as HN seems to think it is.
I remember the day the yield curve inverted in 2005 because I was working for a company that made risk assessment software for MBS. Our call center blew up as the reports started showing how risky balance sheets were.
It’s a nice story that Michael Lewis writes in “The Big Short” about how only a few people made money shorting the crisis but a) its largely not true and b) its more the fact that shorting isn’t nearly as easy as HN seems to think it is.
To underscore the point you are making, part of the drama of the The Big Short was the creative ways people had to find in order to short that particular market (or those markets. I think one group shorted credit spreads and another was shorting an index of derivatives tied to the mortgages? Been so long since I read it).
You’re right, it’s a bit much to say no-one came forward, but enough wasn’t done to catch what was going before it came crashing down. The comment I was replying to was implying people would notice discrepancies and we would be able to catch it.
If Warren Buffet & the World Bank said that the BLS was cooking the books I bet it would be a big deal.
Lots of people gave warnings. I was reading warnings about it in the Economist for years.
It was a damned complex system and so is the economy. A lot of stuff is only fully obvious in hindsight.
You also have the problem of knowing who to listen to. Many people are warning about many things right now. Some are prescient, some are wrong. How to judge?
2008 could have been better predicted and better prevented, but it's false to say no one warned.
It was a damned complex system and so is the economy. A lot of stuff is only fully obvious in hindsight.
You also have the problem of knowing who to listen to. Many people are warning about many things right now. Some are prescient, some are wrong. How to judge?
2008 could have been better predicted and better prevented, but it's false to say no one warned.
It’s also worth remembering just how much money was at stake: everyone who stayed in was going to make a lot more until the crash so there was an enormous incentive to tell yourself that you could time it tightly. If the people making those calls get their bonuses now with little perceived long-term personal risk, that dynamic gets even more toxic.
A lot of people do notice but it’s not something that is tradable because you don’t know when the correction will happen or how the rules will change when it does
One difference is that in the US and other Western countries is that these metrics don’t only come from one state-authorized authority. Investment firms, news outlets, economists routinely check these metrics and offer their own. In China, someone saying that the government is wrong, won’t get much traction. Dissenting Chinese economists are actively censored.
While information freedom doesn’t mean the official metrics are accurate, lack of freedom is a warning sign and should be treated with extreme skepticism.
While information freedom doesn’t mean the official metrics are accurate, lack of freedom is a warning sign and should be treated with extreme skepticism.
The U.S. isn't perfect, but it's not China.
Also most of the important numbers that the average person cares about such as inflation or unemployment are collected in a very rigorous way that is hard for a government officials to modify without leaving a damning paper trail. Not to mention the vast majority of private measures match up with these numbers.
These measures are by no means perfect. The unemployment rate has significantly over estimated the health of the economy since the great recession, but this isn't due to a conspiracy. It's caused because it systematically under counts people who have dropped out of the labor force, or are under employed. (This is for the most popular unemployment rate number, there are much better employment numbers to use that don't suffer from this issue.)
Also most of the important numbers that the average person cares about such as inflation or unemployment are collected in a very rigorous way that is hard for a government officials to modify without leaving a damning paper trail. Not to mention the vast majority of private measures match up with these numbers.
These measures are by no means perfect. The unemployment rate has significantly over estimated the health of the economy since the great recession, but this isn't due to a conspiracy. It's caused because it systematically under counts people who have dropped out of the labor force, or are under employed. (This is for the most popular unemployment rate number, there are much better employment numbers to use that don't suffer from this issue.)
Inflation is super easy to game and everyone wants to push that number as low as possible. The basket used for inflation is ever changing and the percentages aren’t real. For example medical costs are intentionally significantly under counted, and how do you objectively qualify how much better a lcd tv is than a crt tv?
>the chronically unemployed are excluded from the count
This is untrue. There are various measures of unemployment, each of which includes/excludes different factors. Believe it or not, some people actually use this data for work, and sometimes not including, say, people who aren't even looking for work, makes sense depending on what you're analyzing.
>Everybody is happy to agree with me when I say that China fudges their numbers, but when I say other countries are capable of the same thing they tell me I'm crazy
I know folks who work for StatsCan and the BLS. You should provide evidence before accusing hard-working people of corruption. There's nothing intellectual about pointing to random things and saying, "could be a conspiracy!" Yeah, anything could be.
This is untrue. There are various measures of unemployment, each of which includes/excludes different factors. Believe it or not, some people actually use this data for work, and sometimes not including, say, people who aren't even looking for work, makes sense depending on what you're analyzing.
>Everybody is happy to agree with me when I say that China fudges their numbers, but when I say other countries are capable of the same thing they tell me I'm crazy
I know folks who work for StatsCan and the BLS. You should provide evidence before accusing hard-working people of corruption. There's nothing intellectual about pointing to random things and saying, "could be a conspiracy!" Yeah, anything could be.
[deleted]
There are rumors that the unemployment rate is now skewed by counting people with 3 jobs as “3 jobs”. They simply divide the total number of jobs by the total number of people to get the unemployment rate. This would explain the unusual growth in restaurant and hospitality jobs. I don’t know if this is true or not but any metric that becomes a target ceases to be a good metric.
You can look at different measures of US unemployment, the top line number I think is normally "those looking for jobs but unable to find them" but there are a number of other metrics as well.
The only problem is the government first uses an estimate and the later retroactive adjusts the number I believe.
Will the US economy experience a recession in the next...
100 years? Yes!!!!
50 years? Yes!!!
25 years? Yes!!
12.5 years? Yes!
6.25 years? Yes
3.125 years? Yes?
1.5625 years? Maybe
.78125 years? Maybe?
.390625 years? No?
0.1953125 years? No
0.09765625 years? No!
100 years? Yes!!!!
50 years? Yes!!!
25 years? Yes!!
12.5 years? Yes!
6.25 years? Yes
3.125 years? Yes?
1.5625 years? Maybe
.78125 years? Maybe?
.390625 years? No?
0.1953125 years? No
0.09765625 years? No!
This is the best reply. We really don't know, and only greater horizons provide greater certainty of a recession.
Further, we're now in a society where a third of the population lives in a perma-recession where they have not actually recovered from the previous one -- while another section of society lives in permanently good times -- so it is hard to gauge recession from looking around you.
Further, we're now in a society where a third of the population lives in a perma-recession where they have not actually recovered from the previous one -- while another section of society lives in permanently good times -- so it is hard to gauge recession from looking around you.
People have been calling the next recession for more than 3 years, it'll be fun to return to this prediction when we actually do have a recession, as you think it's likely within 3 years.
By the way, a recession is technically 2 quarters of negative growth, so assuming we start from when we actually know we're in recession, it's a minimum of 6 months from now before we are in recession so ".390625 years" would be a definite no.
By the way, a recession is technically 2 quarters of negative growth, so assuming we start from when we actually know we're in recession, it's a minimum of 6 months from now before we are in recession so ".390625 years" would be a definite no.
The market is level two chaotic system, meaning it reacts to predictions about it.
The predictions may have been correct if it weren't for the fact that the predictions themselves perturbed the system.
The predictions may have been correct if it weren't for the fact that the predictions themselves perturbed the system.
You make an astute point lost to those trying to time the market.
I decided to be mostly cash now rather than stocks. I just can not buy stocks when they are this high as I worry what is the upside. Stock markets fall the most as soon as we enter into a recession and they recover fast so I want to be prepared.
I am likely too soon though...
I am likely too soon though...
How do you define it's high? P/E ratio of most value stocks is not much higher than ever. Don't exclude technological advancements, they really contribute a lot to economical growth.
This is a really interesting metric but I'm going to argue that it doesn't say that much about our current situation given that our current unemployment numbers are highly skewed due to a strong shift towards low quality part time work and a large number of people opting out of the labor search (who are not considered unemployed in these statistics).
I could see an argument made that given that this is statistic is relative to itself and just tracks movement it shouldn't matter if things are different now than in the past but it feels to me like the nature of this metric is so different now than it was in the past that it's just not an apples to apples comparison.
I could see an argument made that given that this is statistic is relative to itself and just tracks movement it shouldn't matter if things are different now than in the past but it feels to me like the nature of this metric is so different now than it was in the past that it's just not an apples to apples comparison.
You could use any of the BLS unemployment numbers in a metric line this to see if some of the others were better predictors historically (not sure why they didn’t document that).
If what you are saying is that we are in a historically unprecedented time you’ll note their metric predicted recessions that happened across a wide variety of historical regimes.
If what you are saying is that we are in a historically unprecedented time you’ll note their metric predicted recessions that happened across a wide variety of historical regimes.
I do not have any real numbers, and this is just anecdotal, but in Slovenia (small EU country), a lot of our larger retailers have replaced some posters (basically ads) in their stores with "workers needed" posters, and some have literally advertised that they're looking for workers in their paper ads we get in the mail. Also a car repair shop literally had an radio ad that they're looking for repairmen.
It might be just a coincidence, but it's easy to get/change jobs at the moment, if you're actually willing to work.
It might be just a coincidence, but it's easy to get/change jobs at the moment, if you're actually willing to work.
My sister was working in those retail positions in Slovenia as late as 2 years ago. The pay is laughable (3eur/hour) and the working conditions are shit.
A promotion grants you a whopping 10cent rate increase. A whole 0.8 euro per day if you pass a test!! Oh and you don’t get more than 30 hours per week coz then they’d have to pay benefits.
No shit they have a hard time hiring. Most young people will rather try being an instagram influencer than work for those wages. Got nothing to lose at that point
A promotion grants you a whopping 10cent rate increase. A whole 0.8 euro per day if you pass a test!! Oh and you don’t get more than 30 hours per week coz then they’d have to pay benefits.
No shit they have a hard time hiring. Most young people will rather try being an instagram influencer than work for those wages. Got nothing to lose at that point
https://jobs.aldi-hofer.com/hofer-kariera-si/job/1000-Ljublj...
They're offering 1.2*minimum wage for 30h/week.
For someone without any other qualifications, that's not bad.
I dont know where she worked, but most offer more. Ever barteding gets you 7+eur/h and tips in Ljubljana.
They're offering 1.2*minimum wage for 30h/week.
For someone without any other qualifications, that's not bad.
I dont know where she worked, but most offer more. Ever barteding gets you 7+eur/h and tips in Ljubljana.
Probably a trick of being a student job. I didn’t dig too much and instead nudged her to spend time working on actual long term passions (personal training et al)
It is very similar in Germany. Many companies looking for more people. And it's not about highly educated positions, they are looking simply for young labor, there so many old people.
No single metric is going to give a full picture. However, to my understanding work force participation has been going up and there's been upward pressure on wages at the lower end.
Right, unemployment by itself means little unless you have the labor market participation rate for context.
Working age labor participation; there's a huge demographic shift in place towards old people across almost all first world countries. Not sure if they measure this at all, as the historic assumptions was that the distribution of population across age didn't vary much.
> The Great Recession officially ended in June of 2009
As a "millennial" who graduated in 2008, I seriously hate reading shit like this. Maybe it recovered for the Boomer's pension funds and 401k's, but it took many of my friends over a decade to find work equal to their qualifications. They're only JUST NOW starting to get payed what they deserve (PHDs, MBAs, and Masters degree holders).
As a "millennial" who graduated in 2008, I seriously hate reading shit like this. Maybe it recovered for the Boomer's pension funds and 401k's, but it took many of my friends over a decade to find work equal to their qualifications. They're only JUST NOW starting to get payed what they deserve (PHDs, MBAs, and Masters degree holders).
> As a "millennial" who graduated in 2008, I seriously hate reading shit like this. Maybe it recovered for the Boomer's pension funds and 401k's
No, it didn't, certainly not at the point the recession is deemed to end.
The end of a recession is when the aggregate recovery begins, not when it is complete. (And yeah, recovery from recession doesn't mean most people are doing better, as it's an aggregate about the economy that isn't concerned with distribution—the long “recovery” between the short recession of 2001, IIRC, and the Great Recession saw every quintile but the top without gains, and the bottom three declining.)
The isn't a Boomer vs Millenial thing (it's more of a bourgeoisie vs. proletariat thing.)
No, it didn't, certainly not at the point the recession is deemed to end.
The end of a recession is when the aggregate recovery begins, not when it is complete. (And yeah, recovery from recession doesn't mean most people are doing better, as it's an aggregate about the economy that isn't concerned with distribution—the long “recovery” between the short recession of 2001, IIRC, and the Great Recession saw every quintile but the top without gains, and the bottom three declining.)
The isn't a Boomer vs Millenial thing (it's more of a bourgeoisie vs. proletariat thing.)
Considering the definition of recession is “2 quarters or more of negative growth”, the recession did end June 2009.
Levels of pay have nothing to do with whether or not we’re in a recession.
Levels of pay have nothing to do with whether or not we’re in a recession.
> They're only JUST NOW starting to get payed what they deserve
That is absurd. In a free market with free movement of goods and people, whatever you are getting paid is what you "deserve" aka what other participants in the market are willing to pay for your services.
It is only explicit government intervention that overrides this process; subsided renewal energy sources, childcare, housing etc.
But with everything else being equal your friends were getting exactly what the market could afford. Just because you have a PHD or Masters does not mean someone else owes you a high paying salary.
That is absurd. In a free market with free movement of goods and people, whatever you are getting paid is what you "deserve" aka what other participants in the market are willing to pay for your services.
It is only explicit government intervention that overrides this process; subsided renewal energy sources, childcare, housing etc.
But with everything else being equal your friends were getting exactly what the market could afford. Just because you have a PHD or Masters does not mean someone else owes you a high paying salary.
In real markets, "free movement of goods and people" just doesn't happen. Workers arguably have more constraints on movement than employers and goods do. There's no human equivalent for long-haul trucking and container ships. Not to mention learning Chinese or whatever, getting a work visa, and adapting to the culture.
> ...getting exactly what the market could afford.
"afford" is an odd word choice. As if to suggest that employers simply don't have any money by which they could have increased worker salaries.
In this same period, average CEO compensation increased 25-50%, depending on how you measure it. So, apparently, there's lots of money, but its distribution is skewing increasingly to the very top.
So let's not say "afford".
"afford" is an odd word choice. As if to suggest that employers simply don't have any money by which they could have increased worker salaries.
In this same period, average CEO compensation increased 25-50%, depending on how you measure it. So, apparently, there's lots of money, but its distribution is skewing increasingly to the very top.
So let's not say "afford".
A CEO getting an extra $5M leading a 100,000 employee company means each employee could have gotten an extra $50.
So i would argue it still about what the company can afford.
So i would argue it still about what the company can afford.
Thats only the CEO though. Add a few board members and VPs and it gets more significant. But even with $50 per employee - why not do that instead if you're aware of recession impacting people? (Apart from the obvious - because you want more money)
CEO comp is typically mostly equity, not salary. So is it surpassing that CEO comp goes up when the markets go up? Probably not.
An extra $50 per what? Year? Paycheck? Month? That's key.
> subsided renewal energy sources, childcare, housing etc.
Skipping over oil company subsidies and big bank bailouts when you're cherry picking your government intervention examples makes you appear rather biased.
Skipping over oil company subsidies and big bank bailouts when you're cherry picking your government intervention examples makes you appear rather biased.
I would have thought it was obvious what I meant by "deserve" but apparently I have to spell it out.
No, I don't mean that they are owed anything. This is life after all. You nor I, are owed a damn thing. And in a free market, that's explicitly true.
Duh.
What I mean by "deserve" is... prior generations with similar qualifications enjoyed a much smoother, and more lucrative career. Boomers were handed a golden egg, and managed to nearly destroy it. The middle class is shrinking, wages are stagnant, and frankly if you're not underemployed as a millennial you're among the lucky.
No, I don't mean that they are owed anything. This is life after all. You nor I, are owed a damn thing. And in a free market, that's explicitly true.
Duh.
What I mean by "deserve" is... prior generations with similar qualifications enjoyed a much smoother, and more lucrative career. Boomers were handed a golden egg, and managed to nearly destroy it. The middle class is shrinking, wages are stagnant, and frankly if you're not underemployed as a millennial you're among the lucky.
I agree with your premise that baby boomers have very tenuous grasp on how unique and lucky they were to grow up in the economic time period that they did. When the vast majority of the world's population is third world farmers and your country is at the forefront of industry and technological progress it's easy to coast and succeed.
However, that's clearly no longer the case and the average American needs to compete with a much broader pool of labor, increasing automation, and a growing middle class in more populous, emerging countries. I don't think millennials "deserve" what the baby boomers had; I just think the baby boomers didn't particularly deserve it either and it's becoming more and more obvious that the "normal" they experienced is an outlier era that will not return. Millennials need to learn to compete in this world and on average they are not well equipped to do so because they learned their perspective from a particularly (and unusually) privileged generation.
However, that's clearly no longer the case and the average American needs to compete with a much broader pool of labor, increasing automation, and a growing middle class in more populous, emerging countries. I don't think millennials "deserve" what the baby boomers had; I just think the baby boomers didn't particularly deserve it either and it's becoming more and more obvious that the "normal" they experienced is an outlier era that will not return. Millennials need to learn to compete in this world and on average they are not well equipped to do so because they learned their perspective from a particularly (and unusually) privileged generation.
I like your perspective on the situation. It's both accurate, and far less pessimistic than mine. I'll do my best to adopt this way of thinking going forward.
> Boomers were handed a golden egg, and managed to nearly destroy it.
In point of fact, the policies which did that were adopted while the balance of political and economic power were in the hands of the Silent Generation, but it took a while for the effect to be fully felt and the Boomers were the last generation to have most of their working life before the wheels fell off.
In point of fact, the policies which did that were adopted while the balance of political and economic power were in the hands of the Silent Generation, but it took a while for the effect to be fully felt and the Boomers were the last generation to have most of their working life before the wheels fell off.
The historical norm is living at subsistence levels. The last several generations have been an anomaly. We will return to mean. The millennials children will be worse off and the next generation even more so.
I'm not talking about the 1400s. The context of this discussion is not ancient history. It's the last couple of generations.
I'd argue that you're not necessarily paid equivalent to your worth but rather according to your negotiating options.
The problem with a recession is that it tips the negotiating leverage towards the employers because there is an oversupply of workers. I don't want to speak for them, but I'm assuming the OP means getting to the pay level they would be at had the recession not occurred.
In a sense, both wage rates are "deserved" in the context of the economic reality, but there is a certain amount of luck involved, just like for those planning on retiring in 2008.
The problem with a recession is that it tips the negotiating leverage towards the employers because there is an oversupply of workers. I don't want to speak for them, but I'm assuming the OP means getting to the pay level they would be at had the recession not occurred.
In a sense, both wage rates are "deserved" in the context of the economic reality, but there is a certain amount of luck involved, just like for those planning on retiring in 2008.
Do you consider it a free market if the government bails out big price manipulators when their scheme implodes?
I don't. Most free market thinkers aren't the GOP talking heads you see in the news. Those guys made their fortunes via regulatory capture, war and protectionism for the most part. Frankly it seems they have ridden that train into the ground the values of conservatives can only bend so far before voters start asking questions the politicians can't answer. Only socialism can provide the level of market control that the corporatists crave. Notice how firms got 'woke' all the sudden? Do you really think Pepsi is all about social justice?
Free markets only exist in heavily regulated industries because otherwise everyone cheats and there is no price discovery. Kind of ironic really.
They are using a technical definition of recession.
Technical definitions used by economists are increasingly divorced from reality experienced by people. You don't see a lot of low wage single income families buying 3 bedroom houses anymore but economists will tell us how much richer we are.
To be fair, OP was using the technical definition of shit.
The point is that the uptick began then.
Of course, everything went to shit so quickly that it took a hell of a long time to come back.
Actually, it didn't really come back unless you're in the elite.
Of course, everything went to shit so quickly that it took a hell of a long time to come back.
Actually, it didn't really come back unless you're in the elite.
A recession just means that the prior few quarters of GDP growth did not exceed the quarters before it
It is remarkable that the domestic product increases so reliably between quarters at all
It is correlated and conflated with asset prices and needs to hire anyone but it stops there. Nuanced talking points have no room for discussing when a recession ended or not.
What you are referring to is an entirely different discussion, no matter how relatable it is to people.
It is remarkable that the domestic product increases so reliably between quarters at all
It is correlated and conflated with asset prices and needs to hire anyone but it stops there. Nuanced talking points have no room for discussing when a recession ended or not.
What you are referring to is an entirely different discussion, no matter how relatable it is to people.
[deleted]
No economic numbers are reliable due to reflexivity - "reliable numbers" become inputs for policy makers and market participants, which drive changes in the economy that affect the previously "reliable numbers".
George Soros wrote extensive literature on the topic. He called his fund (second best performing hedge fund in history) the Quantum Fund because, according to him, true nature of economic reality is unknowable to humans. As in it is genuinely impossible to know, regardless of the amount of efforts.
Example: mortgage credit decisions depend on people's earnings and collateral value. Problem? Both earnings (salaries) and the collateral value (home prices) depend on the amount of credit in the system.
The economy, being a subset of psychology/sociology, cannot be understood via normal science because the level of understanding is not independent from the actual rules at work. I.e. the more we understand the different-er we behave. Unlike atoms, which don't care what humans think and just go about their own business.
George Soros wrote extensive literature on the topic. He called his fund (second best performing hedge fund in history) the Quantum Fund because, according to him, true nature of economic reality is unknowable to humans. As in it is genuinely impossible to know, regardless of the amount of efforts.
Example: mortgage credit decisions depend on people's earnings and collateral value. Problem? Both earnings (salaries) and the collateral value (home prices) depend on the amount of credit in the system.
The economy, being a subset of psychology/sociology, cannot be understood via normal science because the level of understanding is not independent from the actual rules at work. I.e. the more we understand the different-er we behave. Unlike atoms, which don't care what humans think and just go about their own business.
The current odds of a recession are the same as just before the big recession of 2008.
Also, concerningly, the real estate market is just as leveraged and bubbled as then as well.
https://www.forbes.com/sites/jessecolombo/2019/06/30/current...
Also, concerningly, the real estate market is just as leveraged and bubbled as then as well.
https://www.forbes.com/sites/jessecolombo/2019/06/30/current...
This analyst writes about that bubble and that it will burst since many years. What is the point? You simply cannot predict future exactly based on historical data. Times are different, technology is different, human behavior is changing, demography is changing, etc.
It baffles me how financial analysts can try to answer such a question by only focusing on the domestic economy. Economies are so interconnected, the next recession is likely to be a global recession. Alarm bells are currently ringing all over the world, but the U.S. is isolated to some extent due to its currency status and relatively stable markets.
It's like standing in a room on the top floor of the Titanic and measuring whether the boat is sinking by measuring the water level on the floor in your room. Meanwhile, if water is getting into the rooms below you...
It's like standing in a room on the top floor of the Titanic and measuring whether the boat is sinking by measuring the water level on the floor in your room. Meanwhile, if water is getting into the rooms below you...
>Alarm bells are currently ringing all over the world
This is not true. Please be more specific with 'all over the world' statement. Do you speak about 5% or 7% of world economy?
This is not true. Please be more specific with 'all over the world' statement. Do you speak about 5% or 7% of world economy?
"The indicator has both correctly signaled a recession 4–5 months following the beginning of the recession and has virtually never called a recession incorrectly since 1970.'
This is more like "how will we know when a recession has already started without waiting for a down GDP for two quarters." That's 6 months in. This signal lets you know 4-5 months in. Not exactly a leading indicator.
This is more like "how will we know when a recession has already started without waiting for a down GDP for two quarters." That's 6 months in. This signal lets you know 4-5 months in. Not exactly a leading indicator.
> This is more like "how will we know when a recession has already started without waiting for a down GDP for two quarters." That's 6 months in.
It's at least 6 months in: NBER recession dating even for recessions that include at least two down quarters (which, while a popular conception is not the official definition, though I don't think any two-quarter consecutive downturn has failed to be included within a declared recession) is often before the first down quarter in a consecutive pair. (E.g., the Great Recession is timed from the Q4 2007 peak, even though there was only one quarter of decline immediately following, then a dead-cat bounce quarter, then a four quarter consecutive decline. If you looked for a pair of down quarters, you'd detect the Great Recession a year after it started; 4-5 months moves that up a lot.)
It's at least 6 months in: NBER recession dating even for recessions that include at least two down quarters (which, while a popular conception is not the official definition, though I don't think any two-quarter consecutive downturn has failed to be included within a declared recession) is often before the first down quarter in a consecutive pair. (E.g., the Great Recession is timed from the Q4 2007 peak, even though there was only one quarter of decline immediately following, then a dead-cat bounce quarter, then a four quarter consecutive decline. If you looked for a pair of down quarters, you'd detect the Great Recession a year after it started; 4-5 months moves that up a lot.)
> has virtually never called a recession incorrectly since 1970.
"virtually never" also sounds like weasel words considering the total number of recessions.
"virtually never" also sounds like weasel words considering the total number of recessions.
Also, what happened before 1970? Is it possible they're just overfitting here?
IIRC that's when the key inputs to all these recession indicators began to be collected.
Why does it have to be just a recession with rebound a few years later? I’d argue many are thinking too positive following 2008 where everything will go back to normal and prices will rally to all time highs. The US economy almost blew up into a full blown depression in 2008. The Fed swooped in to save the day. Can the Fed do that again indefinitely with not only US but potential problems worldwide?
The global economy is reaching uncharted territory now with the amount of debt and negative interest rates.
Maybe a depression like 1930’s are a relic of the past once we decoupled from the gold standard. Central banks today have full power to devalue currency indefinitely in order to maintain the financial status quo.
The global economy is reaching uncharted territory now with the amount of debt and negative interest rates.
Maybe a depression like 1930’s are a relic of the past once we decoupled from the gold standard. Central banks today have full power to devalue currency indefinitely in order to maintain the financial status quo.
> Can the Fed do that again
They've probably got more tools, as they've said that the foreign experience puts negative interest rates on the table as a realistic tool.
But, even if they can't, Congress could, in principal, step in with serious fiscal stimulus [0], which is less limited than the monetary tools available to the Fed. But they've been unreliable in the last few recessions, leaving the Fed holding the bag.
They've probably got more tools, as they've said that the foreign experience puts negative interest rates on the table as a realistic tool.
But, even if they can't, Congress could, in principal, step in with serious fiscal stimulus [0], which is less limited than the monetary tools available to the Fed. But they've been unreliable in the last few recessions, leaving the Fed holding the bag.
> Can the Fed do that again ...?
I mean they don't have much to give do they? Unless we're doing negative interest rates this time.
I mean they don't have much to give do they? Unless we're doing negative interest rates this time.
Japan did negative interest rates in 2016.
https://www.npr.org/templates/transcript/transcript.php?stor...
[deleted]
The president asked for negative interest rates this morning.
For fun, I put together http://isitrecession.com, in the spirit of https://isitchristmas.com
It just shows the inverted yield curve, pulling down data from the US treasury everyday, and subtracting the 1 year from the 10 year interest rate.
It just shows the inverted yield curve, pulling down data from the US treasury everyday, and subtracting the 1 year from the 10 year interest rate.
Can you also plot the S&P 500 (SPY) either overlayed or below the yield curve graph. Would be interesting to correlate.
What defines a recession? Contraction of business right? Not just inverted yeild curve.
We don't.
Anyone with any real predictive power over that question had a license to print money
Anyone with any real predictive power over that question had a license to print money
Yes, which is why Ray Dalio has done just that
How?
Writing option contracts and shorting the market are two examples which come to mind.
Let’s say you had an algorithm that predicted when a recession was declared on average (this is important) 2 months earlier than when it was technically acknowledged (what this algorithm purports to do).
What series of orders would you put in & where to take advantage of it? What market conditions would make money for those orders?
What series of orders would you put in & where to take advantage of it? What market conditions would make money for those orders?
So, the Federal Reserve?
Interesting and makes sense for someone someone like me who's a dummy for macroeconomics. Unemployed people can't afford to spend too much, thus businesses revenue decreases, they lay off more people and it becomes a negative feedback loop.
I've also seen this VOX documentary about the "yield curve" which also famous for predicting recessions.
https://www.youtube.com/watch?v=xiiHjrewXNI
I've also seen this VOX documentary about the "yield curve" which also famous for predicting recessions.
https://www.youtube.com/watch?v=xiiHjrewXNI
So, I make no claims as to its accuracy, I'm just putting this out as food for thought, but here's another possible metric:
https://trends.google.com/trends/explore?date=all&geo=US&q=r...
in one of Buckminster Fuller's books (Critical Path IIRC) he recalls an indicator of the Great Depression being half-finished housing developments - rows and rows of houses, covered in tarpaulin, plumbing exposed like a skeleton, abandoned. I recalled this vivid description later during the mortgage crisis of 2008.
“Recession is when your neighbor loses his job. Depression is when you lose yours." --Ronald Reagan
Harry S Truman originally said it, Ronald Reagan added on an additional part.
"Recovery is when Jimmy Carter loses his job"
"Recovery is when Jimmy Carter loses his job"
Doesn't surprise me that it wasn't original. I purposely left off the last bit to avoid "politics" creep.
Maybe I'm just too cynical, but we know that it'll happen just before the next Presidential election. If the party in power can't get enough buy-in from enough influential people.
You believe the party is power has enough sway to move the needle on a $20T economy?
From what I've read over the years, it's happened before.
Or at least, it's been claimed that it's happened before.
PR obviously also plays a huge role.
https://www.nytimes.com/1991/10/09/business/recession-and-re...
https://en.wikipedia.org/wiki/Early_1990s_recession_in_the_U...
https://www.brookings.edu/opinions/the-economy-and-the-elect...
https://www.bizpacreview.com/2019/08/19/fox-friends-not-afra...
https://www.dailywire.com/news/50222/bill-maher-recession-wo...
https://www.nationalreview.com/news/stocks-drop-as-recession...
https://www.salon.com/2019/08/24/history-suggests-that-a-rec...
Or at least, it's been claimed that it's happened before.
PR obviously also plays a huge role.
https://www.nytimes.com/1991/10/09/business/recession-and-re...
https://en.wikipedia.org/wiki/Early_1990s_recession_in_the_U...
https://www.brookings.edu/opinions/the-economy-and-the-elect...
https://www.bizpacreview.com/2019/08/19/fox-friends-not-afra...
https://www.dailywire.com/news/50222/bill-maher-recession-wo...
https://www.nationalreview.com/news/stocks-drop-as-recession...
https://www.salon.com/2019/08/24/history-suggests-that-a-rec...
All these indicators are guesses at best, but out of curiosity I checked the current Bureau of Labor Statistics numbers [1]:
Prior 12 months lowest unemployment rate: 3.6% (in April & May 2019).
Prior 3 months average (June/July/August 2019): 3.7%.
So according to this metric we are not in a recession.
[1]: https://www.bls.gov/web/empsit/cpseea03.htm
Prior 12 months lowest unemployment rate: 3.6% (in April & May 2019).
Prior 3 months average (June/July/August 2019): 3.7%.
So according to this metric we are not in a recession.
[1]: https://www.bls.gov/web/empsit/cpseea03.htm
Typically a recession is defined by having at least 2 quarters of decreased GDP growth, so it is often a lagging indicator. By the time we definitively know we are in a recession...we've already been in it for 6 months. That is to say that I'm not sure how good of an indicator a rolling average of unemployment is, especially in a gig-economy sort of market. But I agree, using indicators to predict a recession is basically an educated guess, with little emphasis on the educated part.
Very recent report from the Bureau of Labor Statistics. Number of employed Americans is at an all-time high, participation rate is not:
https://www.bls.gov/web/empsit/cps_charts.pdf
For example, slide 15, percentage of the unemployed deemed as long term unemployed declined from 45% to 20% from 2012 - 2019.
https://www.bls.gov/web/empsit/cps_charts.pdf
For example, slide 15, percentage of the unemployed deemed as long term unemployed declined from 45% to 20% from 2012 - 2019.
People have been calling for a recession/big market correction since around 2012. At some point an analyst will be right and then they’ll hold the throne of “this analyst predicted the last recession... hear what they think now” until the cycle repeats itself again.
Those that have been around a while know this whole story plays out on a loop over and over and over :-)
Those that have been around a while know this whole story plays out on a loop over and over and over :-)
The transportation sector seems like a pretty good indicator. Maybe a dip in the number of semi's in the road over time?
On topic, and well outside of my ability to know how seriously to take it: https://johnhcochrane.blogspot.com/2019/09/more-on-low-long-....
Maybe the recession will never come?
What are we going to do now without the recession?
In a way, that thing was a solution.
What are we going to do now without the recession?
In a way, that thing was a solution.
Impossible. Ray Dalio explains the business cycle and why recessions are inevitable with our credit based system https://youtu.be/PHe0bXAIuk0
Possible.
The system got broken by the 2009 rescue attempts (QE 1,2,3).
We are in a different regime right now (negative interest rates). I would not bet on any recession now or in the future.
The system got broken by the 2009 rescue attempts (QE 1,2,3).
We are in a different regime right now (negative interest rates). I would not bet on any recession now or in the future.
Just looking at shifts in the national unemployment rate will never render an accurate assessment of the labor market. It simply overlooks how, why, and which folks are leaving jobs or accurately reflect the under-employed.
You won't.
If you could, you could make an enormous profit off this knowledge.
...when student loan delinquency increases and consumer spending decreases
I worry a lot less about a market correction then I do a political "correction" affecting the markets. We're so polarized. You can sense a desperation among those who took out an exceptionally high amount of student debt and have no realistic way of repaying it. Risk of medical bankruptcy is also extremely high. Among other things, these types of occurrences make people desperate, and desperate people are willing to try desperate solutions, such as radical wealth redistribution, or government/centrally planned economies (socialism), or ...? Ask yourself how 50% of the country might feel if we removed from power (either constitutionally or other means) our democratically elected president?
It's funny, I feel the exact same way as you (I just want our country to hold together) but due to my own biases I'm afraid of threats from the right.
I see social democracy as a necessary palliative that will prevent people from resorting to self-destructive populism. We've got to find some way to bring people back into the fold. I don't buy the idea that investing in our own people leads to authoritarianism.
I see social democracy as a necessary palliative that will prevent people from resorting to self-destructive populism. We've got to find some way to bring people back into the fold. I don't buy the idea that investing in our own people leads to authoritarianism.
This is pure fear spreading. Why are you doing it - is the future really so terrifying?
What fear am I spreading? I think the market is more volatile that many people believe, but more importantly the source of that risk might stem from a source they might not expect.
From this post, nebulous statements of dread
"You can sense a desperation"
"make people desperate, and desperate people are willing to try desperate solutions"
"such as radical wealth redistribution, or government/centrally planned economies (socialism) [already happened, no?] or ...?" (or = unstated fear)
"radical wealth redistribution, or government/centrally planned economies (socialism)" (oh noes, the horror!)
Your prior posts go the same way. Pretty good way of stirring up dread. Basic question then: what have you done about any of it? Or, what should we do about it, specifically?
" think the market is more volatile that many people believe" - I think anyone with half a brain is aware there's a crash coming. For real concern, a carrington event or global warning are likely much more dangerous. So do something.
"You can sense a desperation"
"make people desperate, and desperate people are willing to try desperate solutions"
"such as radical wealth redistribution, or government/centrally planned economies (socialism) [already happened, no?] or ...?" (or = unstated fear)
"radical wealth redistribution, or government/centrally planned economies (socialism)" (oh noes, the horror!)
Your prior posts go the same way. Pretty good way of stirring up dread. Basic question then: what have you done about any of it? Or, what should we do about it, specifically?
" think the market is more volatile that many people believe" - I think anyone with half a brain is aware there's a crash coming. For real concern, a carrington event or global warning are likely much more dangerous. So do something.
Massive (last I checked 13 trillion and rising) negative yields government bonds market all with. Lowering interest rates twice already, heading to another one next week (rumor). Instead of bailing out the homeowners in 2008, they bailed out the banks. "Too big to fail." Think about this stuff people. Nothing has changed, nothing ever changes, Governments are incentivized by the market to steal money from the working class to protect the stability of an economy. It's simple: SLOWLY separate money and state and we don't have to worry about manipulation of the money supply to "protect us." Buy Bitcoin.
I watched a Ted talk sometime ago about how they've discovered a method to genetically modify mosquitoes to eradicate entire populations of mosquitoes from an area (I think it was it made them mos babies die due to genetic engineering).
I couldn't find it now but it seemed like a massive success at the time almost eliminating all mosquitoes from the a city in Brazil (iirc).
Anyone know what happened to it? If that were to come to fruition than a lot of disease in addition to malaria like chikungunya, dengue, etc will be cured too.
I couldn't find it now but it seemed like a massive success at the time almost eliminating all mosquitoes from the a city in Brazil (iirc).
Anyone know what happened to it? If that were to come to fruition than a lot of disease in addition to malaria like chikungunya, dengue, etc will be cured too.
I believe you're on the wrong post.
Everybody is happy to agree with me when I say that China fudges their numbers, but when I say other countries are capable of the same thing they tell me I'm crazy. I am not an expert on China by any means, and I don't believe other countries report their economic health in the same way; but I also don't buy that everything the US and other western countries say is gospel.