Are We in a Recession? Probably
Welcome to the recession. James Hamilton has a couple of posts on whether or not we are in a recession and the picture is grim. The first post looks at GDP and recessions. In that post Prof. Hamilton notes that gross domestic income, GDI, may be the better the predictor of recessions than GDP. He points to the work of Jeremy Nalewaik,
Federal Reserve economist Jeremy Nalewaik has several research papers (, ) arguing that GDI may be a more helpful series for recognizing recessions than is GDP. It is interesting that while GDP indicates sluggish growth over the last 3 quarters, GDI looks much more like a recession, with 2007:Q4-2008:Q1 satisfying the traditional rule of thumb of two quarters of falling real output.
Nalewaik also has a probability index for the economy being in a recession based on the GDI and it indicates that yes, we are in a recession. Prof. Hamilton also points to the rather disappointing employment numbers, which are a lagging indicator, as further evidence that the economy is in recession.
…it seems like a pretty clear call to me– the U.S. economy is currently in a recession which likely began in the fourth quarter of last year.
The second post looks at Personal Consumption Expenditures (PCE). Unlike GDP PCE is reported monthly and at this point we have the first two months of PCE for the next quarter This is the single largest component of GDP and over at Calculated Risk one can infer what the next quarters GDP will be based on the first two months of PCE data of that quarter. In this case the inference is that GDP in the third quarter will be negative. Another indicator that the economy is in recession.
Update: There is also this post on Prof. Edward Leamer’s 4 criteria for calling a recession. Unfortunately we meet all 4 criteria.
The idea of staving of a recession with this bailout of the financial market is pretty much dead now. It, at best, can be seen as a desperate attempt to prevent a severe contraction…well I don’t know…I’m not sure about the severe part of it.