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Notes to myself, possibly of interest to others.
-- Bill Northlich

Tuesday, October 2, 2012

Recession? Maybe No

Some recently posted Rosenberg numbers are very suggestive of an imminent recession. Here's a good probably-no-recession rejoinder.

Menzie Chinn HT DeLong:
As the NBER BCDC notes, the key indicators are GDP, nonfarm payroll employment, industrial production, personal income ex.-transfers, and manufacturing and trade sales. Figure 1 depicts official GDP from the BEA (3rd release for 2012Q2), and from Macroeconomic Advisers (the e-forecasting series is added for reference, since I have a longer series for that).

Employment rose into August (and will likely be eventually revised upward, given the annual benchmark revisions that were reported last week [1]), while income and industrial production fell. Hence, it is conceivable that we are at a peak.

On the other hand, the term premium is signaling no-recession.

Both spreads are positive; this is suggestive of a still growing economy....One can worry if historical correlations would still be informative with respect to current conditions, given the implementation of quantitative easing and Operation Twist, and the encounter with the zero interest bound. However to me, this suggests the spread would be much larger than is observed, in the absence of these phenomena...

So, given the dearth of forecasts of recession, and the fact that not all indicators are trending down, I rate the likelihood of imminent recession as low -- but of course the data could be revised down, going forward. Furthermore, crises abroad, or more likely failure to address the fiscal cliff could yet put us in a self-inflicted recession.

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