David Rosenberg: The Great Recession Never Ended
David Rosenberg, one of the first and few economists to foresee and call the start of the Great Recession, is now more convinced than ever that the Great Recession never ended - just merely temporarily propped up with a sugar high of worldwide government and central bank intervention that was timed to work with the (now waning) inventory correction.
Members of this community who have discussed the stats with me know that I have been in the double-dip camp pretty much all along... but have not been sure whether that "double dip" would be in the form of a double-dip recovery, "double-dip" back-to-back recessions, or a W-shaped single, long recession.
The most rosy scenario of the three would of course be a genuine recovery, merely interrupted by a marked slowdown making the stats look like a "W" but with the second leg down far shallower than the first - and in fact, with most series never going back below their 0 mark. (Many argue that this happened in the early 00s - although the early aughts were probably more a blend of a double dip recovery and back-to-back recessions (as described in the following paragraph)).
A much less tolerable double dip would be identified by a first recession (in this case, roughly winter 2007 - fall 2009) followed by a significant, real recovery - or at least enough of one to put most or all major economic series back above their pre-recession levels, but which would then be followed in relatively short order by a second recession. (This clearly happened in the early 1980s, and possibly also in the early 00s).
The obviously least desirable "double dip" would effectively be one long recession merely punctuated by a few quarters of sugar-coated "growth," but growth not strong and sustainable enough to ever get most economic series back above their pre-recession levels, and then, adding insult to injury of that let-down, only for this sugar high to wear off with overall economy rolling back into outright contraction.
It is starting to look increasingly possible that the Double Dip many of us knew was coming is taking the shape of Door # 3.
As David Rosenberg describes it:
August 20, 2010
In this issue of Breakfast with Dave
• While you were sleeping: a sea of red this morning as far as global equity market performance is concerned; government bond markets retain a solid bid; U.S. dollar is firming
• 500k and counting: U.S. initial jobless claims continue to rise and are now at 500k
• Don’t bet on this Philly: The Philly Fed index swung from 5.1 in July to -7.7 in August, and the components were horrible too
• U.S. leading indicators rolling over
• U.S. recession never ended; GDP to contact in Q3
• The bear market in U.S. housing starts is still far from over
• Canada cooling off: Canada’s index of leading economic indicators came in weaker than expected and wholesale sales outright contracted
...Our suspicions have been confirmed - the recession never ended. Macroeconomic Advisers produces a monthly U.S. real GDP series and it shows that the peak was in April, as we expected, with both May and June down 0.4% in the worst back-to-back performance since the economy was crying Uncle! back in the depths of despair in September-October 2008. The quarterly data show that Q2 stands at a +1.1% annual rate (so look for a steep downward revision for last quarter) and the “build in” for Q3 is -1.5% at an annual rate. Depending on the data flow through the July-September period, it looks like we could see a -0.5% to -1% annualized pace for the current quarter. Most economists have cut their forecasts but are still in a +2.5% to +3.5% range. What is truly amazing is that despite all the fiscal, monetary, and bailout stimulus, the level of real economy activity, as per the M.A. monthly data, is still 2.5% below the prior peak. To put this fact into context, the entire peak to trough contraction in the 2001 recession was 1.3%! That is incredible. Interestingly, and dovetailing nicely with our deflation theme, nominal GDP fell 0.3% in May and by 0.4% in June. This is a key reason why Treasury yields are melting...
Members of this community who have discussed the stats with me know that I have been in the double-dip camp pretty much all along... but have not been sure whether that "double dip" would be in the form of a double-dip recovery, "double-dip" back-to-back recessions, or a W-shaped single, long recession.
The most rosy scenario of the three would of course be a genuine recovery, merely interrupted by a marked slowdown making the stats look like a "W" but with the second leg down far shallower than the first - and in fact, with most series never going back below their 0 mark. (Many argue that this happened in the early 00s - although the early aughts were probably more a blend of a double dip recovery and back-to-back recessions (as described in the following paragraph)).
A much less tolerable double dip would be identified by a first recession (in this case, roughly winter 2007 - fall 2009) followed by a significant, real recovery - or at least enough of one to put most or all major economic series back above their pre-recession levels, but which would then be followed in relatively short order by a second recession. (This clearly happened in the early 1980s, and possibly also in the early 00s).
The obviously least desirable "double dip" would effectively be one long recession merely punctuated by a few quarters of sugar-coated "growth," but growth not strong and sustainable enough to ever get most economic series back above their pre-recession levels, and then, adding insult to injury of that let-down, only for this sugar high to wear off with overall economy rolling back into outright contraction.
It is starting to look increasingly possible that the Double Dip many of us knew was coming is taking the shape of Door # 3.
As David Rosenberg describes it:
August 20, 2010
In this issue of Breakfast with Dave
• While you were sleeping: a sea of red this morning as far as global equity market performance is concerned; government bond markets retain a solid bid; U.S. dollar is firming
• 500k and counting: U.S. initial jobless claims continue to rise and are now at 500k
• Don’t bet on this Philly: The Philly Fed index swung from 5.1 in July to -7.7 in August, and the components were horrible too
• U.S. leading indicators rolling over
• U.S. recession never ended; GDP to contact in Q3
• The bear market in U.S. housing starts is still far from over
• Canada cooling off: Canada’s index of leading economic indicators came in weaker than expected and wholesale sales outright contracted
...Our suspicions have been confirmed - the recession never ended. Macroeconomic Advisers produces a monthly U.S. real GDP series and it shows that the peak was in April, as we expected, with both May and June down 0.4% in the worst back-to-back performance since the economy was crying Uncle! back in the depths of despair in September-October 2008. The quarterly data show that Q2 stands at a +1.1% annual rate (so look for a steep downward revision for last quarter) and the “build in” for Q3 is -1.5% at an annual rate. Depending on the data flow through the July-September period, it looks like we could see a -0.5% to -1% annualized pace for the current quarter. Most economists have cut their forecasts but are still in a +2.5% to +3.5% range. What is truly amazing is that despite all the fiscal, monetary, and bailout stimulus, the level of real economy activity, as per the M.A. monthly data, is still 2.5% below the prior peak. To put this fact into context, the entire peak to trough contraction in the 2001 recession was 1.3%! That is incredible. Interestingly, and dovetailing nicely with our deflation theme, nominal GDP fell 0.3% in May and by 0.4% in June. This is a key reason why Treasury yields are melting...