Thursday , September 19 2019
Home / Econbrowser - James Hamilton / “The data are pretty clear that we are not in a recession”

“The data are pretty clear that we are not in a recession”

Summary:
Surprisingly, that’s not a quote from Larry Kudlow on today’s news shows. Rather that is then Council of Economic Advisers Chairman Ed Lazear on May 8, 2008. Just to remind people, that is 5 months after the recession start determined by NBER. Compare and contrast (Bloomberg): “I don’t see a recession at all,” Kudlow said on “Fox News Sunday.” He added that there were no plans for additional fresh measures to boost the economy, and that the Trump administration would stay the course on its current agenda. “Consumers are working. At higher wages. They are spending at a rapid pace. They’re actually saving also while they’re spending — that’s an ideal situation,” he said on NBC’s “Meet the Press.” What did Ed Lazear see as of May 8, 2008? Figure 1: Nonfarm payroll employment (blue),

Topics:
Menzie Chinn considers the following as important:

This could be interesting, too:

Menzie Chinn writes Guest Contribution: “Identifying the German business cycle”

Menzie Chinn writes Some Observations on Determining Business Cycle Chronologies

Menzie Chinn writes Additional Graphs for Econ 435 Lecture

Menzie Chinn writes Freight Shipping Growth and Recession Probability

Surprisingly, that’s not a quote from Larry Kudlow on today’s news shows. Rather that is then Council of Economic Advisers Chairman Ed Lazear on May 8, 2008. Just to remind people, that is 5 months after the recession start determined by NBER.

Compare and contrast (Bloomberg):

“I don’t see a recession at all,” Kudlow said on “Fox News Sunday.” He added that there were no plans for additional fresh measures to boost the economy, and that the Trump administration would stay the course on its current agenda.

“Consumers are working. At higher wages. They are spending at a rapid pace. They’re actually saving also while they’re spending — that’s an ideal situation,” he said on NBC’s “Meet the Press.”

What did Ed Lazear see as of May 8, 2008?

“The data are pretty clear that we are not in a recession”

Figure 1: Nonfarm payroll employment (blue), industrial production (red), personal income excluding current transfers (green), retail sales (black), all in logs, normalized to 2007M12=0. Source: BLS, Federal Reserve Board, BEA via FRED, and author’s calculations.

These are, with the exception of retail sales, several key indicators followed by the NBER’s Business Cycle Dating Committee. (I could not obtain the relevant vintage of real manufacturing and trade sales, so plot real retail sales instead).

And what does Larry Kudlow (who is, by the way, National Economic Council chairman; CEA Chairman Tomas Philipson has not opined on television, but he has emailed an assessment) know (or should know)?

“The data are pretty clear that we are not in a recession”

Figure 2: Nonfarm payroll employment (blue), industrial production (red), personal income excluding current transfers (green), manufacturing and trade sales (black), and monthly GDP (pink), all in logs, normalized to 2019M01=0. Source: BLS, Federal Reserve Board, BEA via FRED, Macroeconomic Advisers (25 July 2019), and author’s calculations.

Just as in May 2008, it’s not clear one way or the other, but outright dismissal was (as I discussed with other macroeconomists at the time) probably not a good idea.

Note that Mr. Kudlow was similarly dismissive back in December 2007, as noted by Chuck Todd on Meet the Press (Washington Examiner):

“This is what you wrote,” Todd said on Meet the Press. “‘There’s no recession coming.’ This is in December of [2007]. ‘The pessimistas were wrong. It’s not going to happen. The Bush boom is alive and well. It’s finishing up its sixth consecutive year with more to come.’ The more to come was a massive downturn. I admire your optimism, but the data is pointing in another direction.”

Looking Forward

In addition, Mr. Kudlow today stated:

There’s no recession on the horizon.

While Peter Navarro argued:

“Technically we didn’t have a yield curve inversion,” he said on “State of the Union.” “All we’ve had is a flat yield curve.”

I beg to differ. That characterization may be true for the 10yr-2yr, but definitely not true for the 10yr-3mo, and 5yr-3mo identified by Cam Harvey as critical.

“The data are pretty clear that we are not in a recession”

Figure 3: 10yr-3mo Treasury spread (blue), 10yr-2yr (red), 5yr-3mo (green), all in %. Source: FRED, Treasury, and author’s calculations.

Prediction markets put 40% probability of recession by end of Trump’s term (as of 10:40am Pacific time), and Wall Street Journal August survey sets mean probability of recession in 2020 at 33.6%.

“The data are pretty clear that we are not in a recession”

Source: Wall Street Journal.

Menzie Chinn
He is Professor of Public Affairs and Economics at the University of Wisconsin, Madison

Leave a Reply

Your email address will not be published. Required fields are marked *