About that Robust Recovery

Looks like James Hamilton, after peering into his tea leaves, is going coming to conclude that a robust recovery is not going to happen, at least given the data so far.

Since the beginning of April, we’ve been discussing one potentially favorable indicator in the form of new claims for unemployment insurance. In each of the last 6 recessions, the 4-week average of this series reached a peak less than 8 weeks before the economic recovery began. None of the readings over the last 8 weeks exceeded the value reached April 9, consistent with the hypothesis that we are past the peak in new claims for this cycle.

In other words, if the pattern holds that we’ve seen in the last 6 recessions we may be at the low point in the recession, and that the economy might start growing again. Note I said might.

Now that is good news, but Prof. Hamilton looks at the data and concludes that the recovery isn’t looking to be all that great.

On the other hand, the most recent values for initial unemployment claims have not shown further improvements. Although the number released on Thursday was widely reported in the press as a drop in the number of new claims, it actually resulted in a slight increase in the 4-week average, putting the latter pretty much back where it was 4 weeks ago. If we were really beginning a recovery similar to that experienced in previous episodes, we should be seeing sharper drops in this number at this point.

Prof. Hamilton looks at a host of other indicators and while one could point to slight improvements things are still pretty far off in terms of a robust recovery. Now, things could change, but given the data we have it is looking unlikely that we will have robust growth.

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Steve Verdon
About Steve Verdon
Steve has a B.A. in Economics from the University of California, Los Angeles and attended graduate school at The George Washington University, leaving school shortly before staring work on his dissertation when his first child was born. He works in the energy industry and prior to that worked at the Bureau of Labor Statistics in the Division of Price Index and Number Research. He joined the staff at OTB in November 2004.

Comments

  1. odograph says:

    The Japanese scenario, and the “L shaped” recovery has been hanging over us for months.

  2. Dave Schuler says:

    While we’re self-promoting, I wrote a post of my own on L-shaped recessions right about when you did, odograph. IIRC housing has lead the way for the last several recoveries. I think we can say with some confidence that whatever the character of the eventual recovery it won’t be housing driven.

  3. Dave Schuler says:

    BTW I disagree with Dr. Hamilton’s assertion that new car sales are “unsustainably low”. Contrariwise, total car ownership has reached historic highs. We can cull a lot of vehicles out of the fleet before we reach the rate of car ownership in the culturally very similar Canada.

  4. odograph says:

    My blog is too unserious for it really to be promoting ;-), it’s more like a place I can put comments like that for timestamps.

    (And to help me remember what I actually thought at the time … I apparently bought into El-Erian’s “long U?” I guess so, a real “L” seems contrary to our nature.)

  5. Steve Verdon says:

    If it is L-shaped I’d say two things:

    1. The stimulus wasn’t all that stimulative.
    2. We need to re-think Medicare, Social Security, and Obama’s national health care plans.

  6. The biggest problem in trying to project the end of this recession, or at least in trying to compare it to previous recoveries is that there has never been an administration and Congress so hostile to free markets and private business in place that are seemingly going out of their way to prevent any private recovery depite their words to the contrary. It’s a very good thing if new unemployment figures have fallen, though I’ll wait for the inevitable adjustments before celebrating too much, but on the other side of the ledger there just aren’t many new jobs being created and that is directly attributable to the fear and loathing arising in the private equity markets by the federal government’s unprecedented deficit spending, lawless behavior with respect to creditors of GM and Chrysler, desire for ever more regulation, power grabs with the nationalization of healthcare on the horizon, and the growing sense that President Obama and his team are in way over their heads. Of course, they still seem to have a better grasp than Congress of economic matters, but that is damning with the faintest of praise.

    Man, I hope I’m wrong, but I fear this lot is going to make stagflation of the 1970s look good.

  7. Drew says:

    “Step aside, Butch…………”

    So if we are all self promoting……, I wrote on this very site during the campaign that Obama’s promises were hollow, because he was in a box. Housing wouldn’t lead us out. The equity market wouldn’t lead us out. Demographics were problematic.

    As such, I noted that the very philosophical orientation Obama espoused would be the exact wrong prescription.

    He is now doing everything I expected. This is going to be ugly.

  8. odograph says:

    I see Obama being a much more conventional President that those on the left hoped or those on the right feared. They still see him through their filters, of course.

  9. … conventional …

    You keep using that word. I do not think it means what you think it means.

    With respect to the economy, what actions has President Obama taken that aren’t utterly repulsive to a believer in limited government and free markets?

  10. An Interested Party says:

    We need to re-think Medicare, Social Security, and Obama’s national health care plans.

    And what about defense spending? Or can the federal fiscal house be fixed solely through cuts to entitlement programs…

  11. odograph says:

    … conventional …

    You keep using that word. I do not think it means what you think it means.

    With respect to the economy, what actions has President Obama taken that aren’t utterly repulsive to a believer in limited government and free markets?

    He has been conventional in the sense that he has listened to, and followed the advice of, the established power structures in the country. He’d done essentially as the Wall Street elites bid him to.

    Now the interesting thing about your last paragraph, and “a believer in limited government and free markets” … are you maybe thinking of those same Wall Street elites a few years ago, when shoes were on other feet?

  12. Steve Verdon says:

    And what about defense spending? Or can the federal fiscal house be fixed solely through cuts to entitlement programs…

    There isn’t much there there. At least when you look at longer term spending projections. But yeah, every little bit helps. Getting the troops home and probably out of Europe might also be necessary.

    He has been conventional in the sense that he has listened to, and followed the advice of, the established power structures in the country. He’d done essentially as the Wall Street elites bid him to.

    Which quite frankly is part of the problem.

    Now the interesting thing about your last paragraph, and “a believer in limited government and free markets” … are you maybe thinking of those same Wall Street elites a few years ago, when shoes were on other feet?

    Bwahahahahaha. Oh you are funny, here let me quote the primary patron saint of those who favor free markets,

    People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices. It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary. –Adam Smith, The Wealth of Nations

    By your views, Obama is their creature…but you seem fine with that. Go figure.

  13. odograph says:

    He has been conventional in the sense that he has listened to, and followed the advice of, the established power structures in the country. He’d done essentially as the Wall Street elites bid him to.

    Which quite frankly is part of the problem.

    Sure. The painful thing is that there isn’t a grassroots movement to support these things from right or left. It is all coming out of … the banks, basically.

    Now the interesting thing about your last paragraph, and “a believer in limited government and free markets” … are you maybe thinking of those same Wall Street elites a few years ago, when shoes were on other feet?

    Bwahahahahaha. Oh you are funny, here let me quote the primary patron saint of those who favor free markets,

    May I give you a WTF Steve? We just agreed the elites were driving, what, you suddenly think Adam Smith is a live and well and in control of Washington?

    No, those elites pushed deregulation when it suited them (quoting Smith, I’m sure) and then ran back to Washington when it all blew up.

    The right’s problem here (as witnessed on OTB) is that you can’t really keep your eye on those corrupt banks, but have to run off to Smith in an abstract ideological pilgrimage.

  14. odograph says:

    Shorter: How do conservatives engage (and not dodge) The Mozilo Problem?

    (That is, the problem that someone who talks the free market talk might actually be building bigger bombs in his basement, figuratively speaking, than any crazed anarchist.)

  15. Steve Verdon says:

    May I give you a WTF Steve? We just agreed the elites were driving, what, you suddenly think Adam Smith is a live and well and in control of Washington?

    Of course not. Nor do I think he is alive and well on Wall Street either. That was the point of the quote. Sure businessmen migth talk the talk when it comes to markets, but secretly they hate competition. They hate it becuase it means hard work, lower profits, and so on. Your equating free market people with big bussiness people is oh so damn typical of Liberal mush heads. Oh, they like markets and limited government…they must love big business when it is often big business pushing for more government to limit markets.

    No, those elites pushed deregulation when it suited them (quoting Smith, I’m sure) and then ran back to Washington when it all blew up.

    Precisely my point! Now you are starting to get it.

    The right’s problem here (as witnessed on OTB) is that you can’t really keep your eye on those corrupt banks, but have to run off to Smith in an abstract ideological pilgrimage.

    Oh soooo, close, but then your blinders are well…blinding you. I’m not on the right. I’m not advocating that we keep things just as they are. I’d be all in favor of radical restructuring of our financial institutions.

  16. odograph says:

    Do you have a cogent point here Steve?

    Or do you just call names and change directions until everyone gets tired?

    What is your plan, to deal with those who talk the market talk and then blow everything up?

    More free market?

  17. odograph says:

    I think the bottom line in both these threads, the reason Steve is starting to strike out, is that we’ve come right down to some facts that are hard to deal with:

    1) This isn’t your 80’s recession
    2) The stimulus might not be late after all
    3) It might take some regulation to keep it from happening again

    (I mean sure, “free market always” might work if the peoples and the banks could stand “hands off” in any resulting crisis, but that is impossible by our nature. Hence …)

  18. odograph says:

    BTW, I think the primary advantage of the Kotlikoff plan is that it’s so crazy nobody would ever do it, and so it is a “safety position” for anyone looking to avoid more pragmatic changes.

  19. Drew says:

    “Your equating free market people with big business people is oh so damn typical of Liberal mush heads.”

    LOL Truer words were never spoken.

    Also, Odo whining for people to actually make a point (or an argument) rather, than just quote arcane sources is comedy at its best.

  20. Steve Verdon says:

    Do you have a cogent point here Steve?

    Or do you just call names and change directions until everyone gets tired?

    Yes, and no direction change. The point is that people who belive in the free market are not usually the people running large businesses or high finance. Thus, your snark towards Charles was off base.

    BTW, I think the primary advantage of the Kotlikoff plan is that it’s so crazy nobody would ever do it, and so it is a “safety position” for anyone looking to avoid more pragmatic changes.

    IOW, keep the status quo, just put a bit more mustard on that crap sandwhich. Good to know where you stand Odo.

  21. odograph says:

    Steve, I wasn’t snarking “at” Charles, so much as at the guys who switch direction, who go from private profit to socialized losses.

    Drew, why do you love this, when Steve stipulates it as true at one point and attacks it a moment later?

    “Your equating free market people with big business people is oh so damn typical of Liberal mush heads.”

    Oh yeah, that is false, but this is true:

    No, those elites pushed deregulation when it suited them (quoting Smith, I’m sure) and then ran back to Washington when it all blew up.

    Precisely my point! Now you are starting to get it.

    Maybe you guys need to takes some notes on your own positions.

    (Either that or you KNOW that you can’t trust your own allies, but do so anyway, because with any other answer the facade crumbles.)

  22. odograph says:

    BTW, I think the primary advantage of the Kotlikoff plan is that it’s so crazy nobody would ever do it, and so it is a “safety position” for anyone looking to avoid more pragmatic changes.

    IOW, keep the status quo, just put a bit more mustard on that crap sandwhich. Good to know where you stand Odo.

    You pulled that one out of thin air Steve. LOL, after I say “It might take some regulation to keep it from happening again” you say “IOW, keep the status quo.”

    You are flailing.

  23. odograph says:

    Note: I said above:

    Shorter: How do conservatives engage (and not dodge) The Mozilo Problem?

    (That is, the problem that someone who talks the free market talk might actually be building bigger bombs in his basement, figuratively speaking, than any crazed anarchist.)

    Steve’s first answer was to follow a plan seriously backed by no one, no political party, not on the radar (and to attack me of course).

    Drew just attacks, without an answer for The Mozilo Problem.

  24. Steve Verdon says:

    No Odograph, you think band-aids can work. To really solve the problem we need something different. But we wont get it. We wont get it because of the incestuous relationship between DC and Wall Street. If you really want to fix that, you need to end that relationship…after all its not a healthy one. You seem to think we can somehow make it work.

    Oh, and Odograph why do I have to fit into one of your pigeon holes? I don’t want to sign on to a Democrat Plan or a Republican Plan…so therefore I’m some sort of lunatic? But you…you appear to think picking one or the other is fine…when it wont really solve the problem. Not in the long run. Sorry, I don’t want to do what hasn’t worked in the past and almost surely wont work in the future.

  25. odograph says:

    I will seriously consider any plan that you can convince me is politically possible (and not just fodder for the 3 Libertarian Party guys who show up for free taco night).

    Show me.

  26. And what about defense spending? Or can the federal fiscal house be fixed solely through cuts to entitlement programs…

    Trying to get out the door so I don’t have tiome to llok up the numbers, but as I remember, by historical standards defense spending is not very high right now. Entitlement programs on the other hand continue to get bigger and bigger in relative as well as absolute terms each and every year. It is only through controlling their growth, and perhaps even reversing it in at least some areas that federal expenditures can be brought under control.

    To take an extreme example if you cut defense spending to 0, do you think that will solve the problem? Really?

    Oh, and sorry odograph, I don’t have the time to wade in farther here now.

  27. odograph says:

    We are in a war, but check “defense spending per captia” anyway. It was trending up, even inflation adjusted, before. Now it’s way up, of course.

  28. Sure, right after you check entitlement spending per capita. Then you might want to check your use of adjectives.

  29. Steve Verdon says:

    Odograph,

    Any “solution” that is politically possible is not a solution since it will perpetuate the current system that benefits those in DC and Wall Street. That is my position. You almost agree to it, then back off implicitly denying that the connections between DC and Wall St. are the problem. This is why we haven’t really had a solution so far…because a solution that perpetuates Wall St. elites and DC elites as well as addresses the current problems doesn’t exist.

    Oh and Ed Leamer is not a libertarian, my guess is that he is likely a Democrat or centrist independent type–i.e. declines to state. I really don’t know Kotlikoff’s political leanings, but I’d say centrist. I base this on my readings of their various papers and hearing them speak on various issues. So once agian…doesn’t quite fit into one of your pigeon holes.

    I’d also add that doing the same thing over and over again and expecting different results is described by lay-people as the definition of insanity. That is what you want Odograph, to do what we’ve always done and expect different results. When someone comes along and says, “No, this is the real problem.” You reply with, “Yeah, I know, but we can’t do anything about it.” But I’m the unserious one.