Posted by Larry Doyle on November 10th, 2010 7:47 AM |
Economic data is typically released and then reviewed in aggregate fashion. As such, understanding the dynamics at work within our economy is often clouded by the inability to access and analyse ‘the trees’ as opposed to ‘the forest.’ What happens as a result of this reality? Economic programs to address issues are typically crafted while looking through the rear view mirror. Regrettably results generated are often sub-standard and fraught with unintended consequences.
How might we change our perspective? Let’s check in with Rick Davis of Consumer Metrics Institute who projects what will occur in our economy based on a forward looking process that captures real-time consumer activity. As a longstanding admirer of Rick and his work, I welcome sharing his recent fabulous piece, Revisiting The Character of “The Great Recession”
We have commented before about how the “Great Recession” has changed character over time, evolving from a relatively normal “garden variety” and V-shaped consumer confidence recession into something far more persistent — where a lack of jobs and negative home equity has transformed it into a “new frugality.” But we haven’t previously discussed how the “Great Recession” has been an uneven experience among even those living in “Main Street” America. A recent review of our data has convinced us that this has not been a recession of shared pain, but one that has cut much deeper in some demographics than in others. (more…)
Posted by Larry Doyle on July 26th, 2010 11:25 AM |
In the course of a discussion this past week, I made the point that I do not believe our economy has ever truly come out of the recession which officially began in December 2007. The National Bureau of Economic Research (NBER) is responsible for measuring the start and end dates for economic contractions and expansions. Why is it that the NBER has never officially declared an end to the recession? Interesting, very interesting.
On this topic, a good friend shared with me a fabulous piece which addresses our current economic health and the major hurdles for our future economic growth and prosperity. This piece, Quarterly Review and Outlook by Hoisington Investment Management in Austin, TX, addresses these hurdles in forthright, layman’s fashion. (more…)
Posted by Larry Doyle on July 23rd, 2009 8:48 AM |
At the request of a reader (hat tip to kbdabear), I have been asked to comment on a report produced by Sprott Asset Management of Toronto, Ontario entitled It’s the Real Economy, Stupid. The writers, Eric Sprott and David Franklin, believe:
We are now in the early stages of a depression. The economic indicators we follow to track real economic activity are all signaling a slowdown of massive proportions. You wouldn’t know it reading the mainstream papers of course – they all focus on the relative decline in the slowdown’s intensity. Reading about the slowdown ‘slowing down’ is not the same as growth however, and does not warrant excitement in our opinion.
Are we in the early stages of a depression or are we merely experiencing the worst recession since the 1930s? Let’s define these two economic terms.
The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for two or more consecutive quarters.This definition is unpopular with most economists for two main reasons. First, this definition does not take into consideration changes in other variables. For example this definition ignores any changes in the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten months or less may go undetected.
Recession: The BCDC Definition
The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession is taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out. When the business activity starts to rise again it is called an expansionary period. By this definition, the average recession lasts about a year.
And how is a widely feared depression defined?
Before the Great Depression of the 1930s any downturn in economic activity was referred to as a depression. The term recession was developed in this period to differentiate periods like the 1930s from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of a depression as a recession that lasts longer and has a larger decline in business activity.
So how can we tell the difference between a recession and a depression? A good rule of thumb for determining the difference between a recession and a depression is to look at the changes in GNP. A depression is any economic downturn where real GDP declines by more than 10 percent. A recession is an economic downturn that is less severe.
By this yardstick, the last depression in the United States was from May 1937 to June 1938, where real GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can be seen as two separate events: an incredibly severe depression lasting from August 1929 to March 1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-war period. The worst recession in the last 60 years was from November 1973 to March 1975, where real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in recent memory using this definition.
In reading Sprott’s and Franklin’s review, they focus on the negative assessments of the following economic data: (more…)