The most devastating
recession since World War II has officially ended, according to the Department of Commerce. In a
press release, the department says the “Real GDP increased 3.5 percent at an annual rate in the third quarter, after declining in five of the preceding six quarters. The gain marked the largest quarterly advance since the third quarter of 2007.”
Commerce Secretary Gary Locke says “the tough decisions this administration made to rescue the
economy from the abyss were correct. We’re headed in the right direction, and even though there are still too many
Americans out of work and still much work to be done, without the action taken in the early days of this administration, the pain families are feeling today would be much worse.”
Locke isn't the only one who feels there is still work to be done. According to the
Los Angeles Times:
…today's preliminary report doesn't mean the economy is in good shape. Its expansion in the third quarter only partly offsets its dramatic 6% decline last fall and winter. A number of forecasters are predicting weaker expansion in the fourth quarter and in the early part of 2010.Worst of all is
unemployment, which reached a 26-year high of 9.8% last month, and is expected to remain high for the time being.
"It will take sustained, robust GDP growth to bring the unemployment rate down substantially," said Christina Romer, head of the White House Council of Economic Advisors. “Such a decline in unemployment is, of course, what we are all working to achieve."
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NEWS: U.S. Department of Commerce Says "The Recession is Over"
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Recession Over? Reply hazy, try again.
And we're just supposed to trust these Government "reports"?
How can they say we're out of a recession when home foreclosures are surging still (see www.foreclosure.com ) and auto repossessions are skyrocketing (see www.repofinder.com )?
I'll trust my magic 8 ball over Government "reports".
- mikedudical
October 29, 2009 11:08AM
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It's a technical definition
of a recession . By the technical definition, the recession is over since its based solely on GDP growth. Always has been, probably always will be. The government report is correct in declaring that the recession is, by definition, over. Your objection comes from not agreeing with the definition of a recession, but it's difficult to define an empirical measure of a recession other than GDP due to so many factors coming into play.
That doesn't mean the economy is okay, even Christina Romer admits that freely (although these numbers give strong hope it will get better within the next few months, certainly by 1st quarter next year).
- caelum
October 29, 2009 11:22AM
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Looks artificial to me.
The big increases that spurred the recession being "over" were increases in home and car sales. Coincidentally, both of those saw artificial increases due to the cash for clunkers debacle and the tax credits for first time home buyers. My guess is that possibly this quarter and likely the next will see the correction and it will be slightly worse than before this quarter.
Here's to hoping I'm dead wrong on this.
- LagerHead
October 29, 2009 2:07PM
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What is "artificial"?
The multipliers of spending have been estimated by a variety of sources and they all come up roughly the same, so we can estimate what contributed to this GDP growth this quarter by percentage - just looking at the ARRA.
Directing Spending by the government sits at $15 billion . Spending by the states to direct aid from the states is around $30 billion. Business tax cuts are at about $9 billion. Individual tax cuts are about $13 billion. Transfers to individuals are at $30 billion. So, we get about $97 billion. Depending on the multipliers you use you can get between $95 - $98 billion.
So, using entirely standard macroeconomics theory I can say that the stimulus contributed 2.7 - 3% GDP growth for the 3rd quarter. Bivens analysis was most convincing putting it at 2.7% for 3rd quarter, cumulative 1.6%. That allowed him to through, very-standard theory, estimated job effects also. Given that hours have fallen 25% faster than employment, looking at pre-recessions levels work, we get 1.3(1.6*(1-.25) = 1.56, or roughly 5 million jobs were created (or saved I guess).
On car / housing sales:
Cash for Clunker's contributed to 0.8% - 1% of our growth in this quarter, depending what estimates you use, I'll explain why I'm not worried about this in a minute.
Housing accounting for 0.5% of our growth. Tax credits are not substantial enough to encourage home buying on the levels we saw. 24% gain in existing home sales in Jan, 22% increase in new-home purchases, 40% in single-family housing. Fixed rates at at an all-time lower. According to the Case-Shiller index when compared to pre-bubble numbers and adjusting: houses are undervalued right now. That's what is spurring the growth, not a tax credit which is worthless at 8,000. The market where the credit is useful has seen very little growth really, and people don't go out and buy a new $150,000 home in a bad economy because $8,000 popped up. Good ole' Friedman's Permanent Income Hypothesis strikes again. We won't see home growth at that level because inventory fell dramatically in September, but that isn't going to inhibit the recovery substantially since rapidly growing industrial production is actually fitting in nicely to fill any gap there.
Consumer spending will slightly drop next quarter, and then rise again likely, due to some of the incentives being removed (like C4C); but looking at industrial production it appears that the consumer spending numbers shouldn't see a big hit once those translate to jobs (and it will, you can only grow so long before you have to hire someone).
I also don't know what "artificial growth" is or how you distinguish it from "real growth."
If you mean private growth, we've actually seen that grow.
Or we could also just have waited the 5-8 years the International Monetary Fund estimated it would take for private business to recover without government assistance, hurting our long-term growth substantially in the process, and then watch as we fall behind as a world economic power. That would be fun.
- caelum
October 30, 2009 11:07AM
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Housing starts - unadjusted
About the best I can suggest to you is to have a look at some of the raw data - unadjusted:
http://www.census.gov/const/startsua.pdf
Oh, yeah, housing is going gang busters, right? Big turn around, right?
Look at the numbers. Housing is sitting at the bottom of a cliff that makes the worst recessions of the past 50 years look good, and that's comparing numbers to data collected when the US population was half of what it is today.
- Don Earl
November 2, 2009 7:45PM
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Um,
What's your point? Nobody seriously considers non-seasonal adjusted rates in any analysis on the entire planet, particularly during recession time. That's an absurd notion that nobody takes seriously when researching these things.
- caelum
November 3, 2009 11:36AM
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What's the point?
The point is we're a year into a massive depression that makes the 30s look like a walk in the park.
The notion the recession has ended is ludicrous. People not able to do math above the level necessary to count change are declaring the recession has ended as a result of a several, largely manipulated, percentage point gain. The fact is the real estate market alone would have to see a 200% increase from current levels just to reach a point of being on par with the worst recessions seen in the past fifty years.
It's really very simple. People who don't have money can't buy stuff. It's actually worse than that as the value of the little bit of money they do have is falling off a cliff.
- Don Earl
November 3, 2009 2:37PM
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GDP is a joke
First of all, the numbers are "seasonally adjusted". Unlike the weekly new claims reports, GDP NEVER discloses the raw data. It's Enron style accounting carried to a degree as to make Ken Lay look like a boy scout.
Even with the quarter's dead cat bounce, we're down nearly 17% from this time last year. The increases/decreases are measured quarter to quarter. In other words, after falling for seven quarters in a row, we're back to about where we were four or five months ago.
It's also worth noting that government spending increases GDP. The farther into debt the government drives us, the better GDP looks. The man on the street may actually be living there, but as long as a few insiders snag windfall government contracts, everything is just dandy.
Plus, the numbers are heavily manipulated, and are subject to multiple revisions. The so called "advance" numbers will be revised next month and again in December. Then, every few years, they're subject to further revisions.
Also of interest is a " recession " is defined as two quarterly declines in a row, while the economy is officially out of recession with one quarterly increase.
In spite of the numbers, in the real world, this quarter is going to be a bloodbath. Real estate sales fall off a cliff in the winter months, with the low point hit around January. New construction is running about a third of what it is even in a mild recession. People are losing jobs at an alarming rate, and not only are the jobs gone, but we're at a point where some half million people a week are running out of unemployment benefits . Those who were hanging on by a thin thread with benefits are now stone cold broke. The result will be skyrocketing foreclosures and credit defaults, pushing banks over the next edge of the cliff.
This thing will continue feeding itself for years. For every person who loses a job, they will be unable to buy those things that keep everyone else employed. The people who might have been in the market for a new car this quarter, bought one last quarter because of the deep discounts. The people who bought xmas presents last year, don't have an income this year.
The recession may be over, but we're just on the first leg down in the middle of a depression that will make the 30s look like a walk in the park. Over a year ago I predicted we'll be looking at food riots by next summer. I've yet to see anything that would alter that view.
How far away are we from anarchy and civil unrest? Three days. That's how long a person will go without food before they turn to crime to feed themselves.
- Don Earl
October 29, 2009 3:28PM
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We are not out of a recession!
I am shocked any one believes our government ! What I keep asking others is where do these numbers come from? I am in manufacturing and I don't know of one manufacturing company who reports to ANY AGENCY letting them know what they are doing. So when they say manufacturing is up, they are lying. I have NEVER seen it so bad in my 30 years in this trade. Small business is dropping like flys and we are not adding any new employees because we don't have to work. I am shocked people believe this is over and until we bring handl pulling, button pushing manu=facturing jobs back to the USA, we will never get out of this downhill slope.
If we don't make things and sell things, how can our dollar become strong again? We keep bailing out failing companies and our government has no right to get involved in health care . they like ot make laws and rules but yet, they don't help small business with all the burden they put on us.
I am amazed at the people who believe what they hear and they aren't living in reality!
America was built on manufacturing. Look at the growth China has. Ever wonder why? go to any store and try to buy something made in the USA. We have given away all our knowledge to a country who hates us and is building their military up. Hate to say it, we are doomed and I am so glad I will not leave any children in this workd behind when I go because they will pay a price we have yet to see.
I have no more faith in government!
John D
- jd3d
November 3, 2009 12:43PM
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Not Surprising
The recession by the technical definition is flawed in my view, but from the point of GDP this is correct. I was actually expecting a 3% increase, but I guess I was overly pessimistic given the industrial production numbers being above 5%.
GDP can only grow for so long until unemployment starts to see drops, I'd suspect we'll see unemployment start to drop relatively quickly starting the 1st quarter of next year. It'll be a bit before we return to to 7% levels though (I wouldn't expect that till the end of 2010, at best).
If you dig in the data though, most of this growth is from stimulus spending and the multiplier effect. Pretty strong case for a proper size stimulus, rather than the watered down version with tax cuts that do nothing in a recession (see: Friedman's Permanent Income Hypothesis) except waste federal funds. It should have been easily twice the size we got, and if it were done properly we would have seen over 40% of it recouped in economic growth and we would get out of this situation much faster.
- caelum
October 29, 2009 11:19AM
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What?
"It should have been easily twice the size we got[.]"
It should have been zero. The market would have bought up the "toxic assets" held by these companies or in the case of GM and the like, would have just replaced them with products that people actually want. You could pump 50 trillion dollars into GM and I don't believe they'd be able to make a dime out of it (unless they invested it in Toyota stock).
The stimulus was crappy idea when Bush started it, and a crappier idea when Obama continued it. Last time I checked, it didn't pay to reward bad behavior. But maybe that's the new status quo.
- LagerHead
October 29, 2009 2:11PM
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Uh ....
toxic assets are unrelated to stimulus . The stimulus has nothing to do with toxic assets. You are talking about entirely different programs, one designed to recover the financial institutions and one to increase aggregate demand. The TARP program was poorly designed for various political reasons, but that has nothing to do with stimulus packages.
So, I'm not sure what your are talking about.
- caelum
October 30, 2009 10:25AM
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You'd have to ask Obama.
He's the one that kept talking about the toxic assets while he was pushing this crap down the throats of the all-too-willing American people.
- LagerHead
October 30, 2009 10:27AM
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huh
I don't understand what you are saying. How was TARP used to push stimulus down peoples throats?
- caelum
October 30, 2009 11:10AM
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