Market Sentiment - Recession Length

[Koolau]

Redefining terms is becoming epidemic among the political cast. For example an income tax on capital gains is now an ‘excise’ tax in WA state. This gets around some constitutional difficulties with an income tax. No elected official spends taxpayer dollars these days, they ‘invest’ the dollars.

It's 1984 all over again. He who controls the language controls everything else.

 

[Koolau]

Below is the definition from the National Bureau of Economic Research ("the horse's mouth"). I think they call it after its clear its already in, which some complain is not real-time enough.

Q: What is a recession? What is an expansion?
A: The NBER's traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The committee's view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.
NBER FAQ's

Never heard of them. Are you sure you got the right end of the horse, there?

IOW: "Blah, blah, blah, blah, blah. We'll let you know if you are in a recession. Trust us! We're very important and have all the answers. You don't know anything. Don't trust your lyin' eyes."

But, of course, YMMV

 

[SecondCor521]

Well, it's "official" - or is it?

Used to be 2 quarters of GDP decline. Now they (you know who you are) say, no! "That's not the definition." Of course, then "they" do not say what the definition is. But, not trying to turn this political. Just wondering what IS the definition? Who decides what the definition is? Just curious, not that it changes how I live. YMMV

Other than things like trademarks like Cheerios or Post It notes, as far as I know this is the only example where a common term is defined by a private corporation. I think this situation is silly.

I also think people will decide on their own if we're in a recession or not based on their personal economic experiences. People who lose their job, or see inflation persisting, or paying more for gas, or seeing their early retirement postponed may view their experiences as recessionary regardless of what NBER or their local elected representative might say. OTOH, people who are doing well in this economic environment (and these people do exist) might shrug their shoulders and say, "Eh, wasn't too bad."

 

[GravitySucks]

NBER can say they're the deciding entity but I don't fund them, didn't vote for them, or even know them. Can the foundations and government agencies funding them influence them to slow their publishing its officially a recession?
Does it make a difference what you're living through defined as? Not really. I won't be making decisions based on the semantics.

All my life it's been two consecutive contracting quarters and that's what I'm still using.


Now get off my lawn.

 

[GenXguy]

I also think people will decide on their own if we're in a recession or not based on their personal economic experiences.

A poll a couple weeks ago had 65% of responses saying we are already in a recession and 20% saying we are not in a recession. 15% said they didn't know.

https://www.npr.org/2022/07/28/1113649843/gdp-2q-economy-2022-recession-two-quarters

 

[pb4uski]

Well, it's "official" - or is it?

Used to be 2 quarters of GDP decline. Now they (you know who you are) say, no! "That's not the definition." Of course, then "they" do not say what the definition is. But, not trying to turn this political. Just wondering what IS the definition? Who decides what the definition is? Just curious, not that it changes how I live. YMMV

Nah, there's a lot more to it than that. So two consecutive quarters of 0.1% decline in GDP is a recession? Hardly.

Are we in a recession? I dunno. Probably, but it is too soon to tell which is why fixed rules like 2 quarters of GDP decline is foolishness.

Inflation is the bigger danger to the economy and the democracy... if a mild recession is needed to whip inflation then I'm all for it.

 

[SecondCor521]

... if a mild recession is needed to whip inflation then I'm all for it.

Thankfully Chairman Powell said similar things in his remarks yesterday.

He did seem to somewhat uncomfortably dodge the questions as to whether we were in a recession or not. I think his (non)responses were reasonable.

Since nobody asked, I think we are in a mild recession now and will be out of it by the end of this year. But I also predicted COVID would fall out of the news cycle in two weeks, and I was wrong by several orders of magnitude on that prediction.

 

[Koolau]

Other than things like trademarks like Cheerios or Post It notes, as far as I know this is the only example where a common term is defined by a private corporation. I think this situation is silly.

I also think people will decide on their own if we're in a recession or not based on their personal economic experiences. People who lose their job, or see inflation persisting, or paying more for gas, or seeing their early retirement postponed may view their experiences as recessionary regardless of what NBER or their local elected representative might say. OTOH, people who are doing well in this economic environment (and these people do exist) might shrug their shoulders and say, "Eh, wasn't too bad."

I think, most importantly, this is the first time I've ever heard any "controversy" about the definition of a recession. As long as I've been reasonably aware of such things, it's been 2 quarters of negative GDP. Period. A previous "person" in 2020 tried to say, "Yeah, but the stock market is fine." It didn't fly then. Likewise, "good" unemployment numbers do not prove a lack of recession.

An analogy that could (or maybe not) be entertaining on its own:

I was taking my "check ride" to gain my private pilot's license. One of the required tests is for the student to wear a "hood" which does not allow him/her to see outside the aircraft. First, the student must bow his/her head so s/he can not even see the instrument panel. The student removes his/her feet from the rudder pedals and hands from the yoke. The FAA approved pilot puts the aircraft through enough maneuvers that the student has no idea what is actually going on with the aircraft. Suddenly the check pilot says "You're aircraft." In my case, I could hear the aircraft going extremely fast (air rushing over all surfaces.) Quickly looking at the instruments, I could see the aircraft was almost exceeding the red-line speed. What do you do? Pull back on the yoke and pull the power back. INSTANT STALL! Say what?

The check pilot had placed the speeding aircraft in a near vertical climb. No way to know that from the "feel" - only instruments. I depended upon the air speed and sound of the aircraft. I did not look at other instruments like rate of climb or artificial horizon. I passed the test, but the check pilot just wanted me to know how easy it is to get in trouble when a pilot depends upon his senses and not his instruments.

Okay, if you are still with me, my apology to the economy is this: Employment is an important indicator to the health of the economy, but it is NOT the only one. Currently, the low unemployment rate is (arguably) the only (real) positive economic indicator. Yeah, the stock market appears to be turning around, but... Employment is notorious for turning on a dime which could very easily lead to a "stall." End of analogy and YMMV.

 

[Koolau]

^^^^^

Oh, and low unemployment does NOT indicate HIGH employment.

 

[W2R]

All my life it's been two consecutive contracting quarters and that's what I'm still using.


Now get off my lawn.

Me too! In fact, to me that's the "official definition" of a recession for the nit-pickers to use.

But in my mind, the real, actual recession started back at the beginning of the year. That's when I definitely got that unmistakable sense of foreboding, and certainty that we were/are in the beginning stages of a recession.

 

[Gumby]

Is there some sort of prize involved?

 

[SecondCor521]

I think, most importantly, this is the first time I've ever heard any "controversy" about the definition of a recession. As long as I've been reasonably aware of such things, it's been 2 quarters of negative GDP. Period. A previous "person" in 2020 tried to say, "Yeah, but the stock market is fine." It didn't fly then. Likewise, "good" unemployment numbers do not prove a lack of recession.

An analogy that could (or maybe not) be entertaining on its own:

I was taking my "check ride" to gain my private pilot's license. One of the required tests is for the student to wear a "hood" which does not allow him/her to see outside the aircraft. First, the student must bow his/her head so s/he can not even see the instrument panel. The student removes his/her feet from the rudder pedals and hands from the yoke. The FAA approved pilot puts the aircraft through enough maneuvers that the student has no idea what is actually going on with the aircraft. Suddenly the check pilot says "You're aircraft." In my case, I could hear the aircraft going extremely fast (air rushing over all surfaces.) Quickly looking at the instruments, I could see the aircraft was almost exceeding the red-line speed. What do you do? Pull back on the yoke and pull the power back. INSTANT STALL! Say what?

The check pilot had placed the speeding aircraft in a near vertical climb. No way to know that from the "feel" - only instruments. I depended upon the air speed and sound of the aircraft. I did not look at other instruments like rate of climb or artificial horizon. I passed the test, but the check pilot just wanted me to know how easy it is to get in trouble when a pilot depends upon his senses and not his instruments.

Okay, if you are still with me, my apology to the economy is this: Employment is an important indicator to the health of the economy, but it is NOT the only one. Currently, the low unemployment rate is (arguably) the only (real) positive economic indicator. Yeah, the stock market appears to be turning around, but... Employment is notorious for turning on a dime which could very easily lead to a "stall." End of analogy and YMMV.

As an aside, my Dad (former CFI) did the hood thing with me a lot. I liked it, and he trained me well I think. I was taught to level the wings then check attitude. Not sure if that's correct. It is weird how CFIs can get the plane in a situation where one's senses are very misleading.

I think many people who want to minimize, avoid, or delay calling this recession have obvious, reasonable and understandable reasons for doing so. Among these reasons are retaining their job.

 

[GravitySucks]

Is there some sort of prize involved?

Bragging rights and ability to tout your exceptional powers to market your newsletter.

FWIW I'm also in the let a recession roll if that's what it takes to tame inflation camp.

 

[Koolau]

Me too! In fact, to me that's the "official definition" of a recession for the nit-pickers to use.

But in my mind, the real, actual recession started back at the beginning of the year. That's when I definitely got that unmistakable sense of foreboding, and certainty that we were/are in the beginning stages of a recession.

Agreed. And here I thought it was just me!

 

[W2R]

Is there some sort of prize involved?

Hush, you don't qualify! Pretend you never said it and go stand in a corner. All Admins are immediately eliminated from consideration for the prize (reasons: just because). Only the rest of us can enter the contest.

 

[W2R]

Agreed. And here I thought it was just me!

Nope! Right here with you.

 

[pb4uski]

... Yeah, the stock market appears to be turning around ....

But the stock market is not the economy.

 

[MichaelB]

Is there some sort of prize involved?

Yes indeed, and for some, it’s the most important prize of all - reputational risk.

What makes it difficult in this thread (and similar) is people imposing their own definitions of recession. The Economist magazine had an interesting article on how US recessions are called, and gave a couple of examples where a recession was called with only one quarter of negative growth (1960, 2001, 2020).

They also added this

When identifying business cycles in recent decades the nber has put most weight on real personal incomes and employment figures, and both of these are so far holding up better than gdp growth.

The NBER may call a recession, but it’s not at all clear that they will. Business investment is declining and personal consumption is growing. The Fed announced that industrial production increased in Q2 (here). This increase in production was despite a significant decline in inventories, just like Q1. Most of all, new unemployment claims are beginning to trend up but are still quite low.

An alternate view of economic activity is GDI. This looks at income, while GDP looks at activity. They track each other very closely, but for the past year, GDI has been much more positive and shows no sign of slowing. This is consistent with a strong labor market.

 

[GravitySucks]

Yes indeed, and for some, it’s the most important prize of all - reputational risk.

What makes it difficult in this thread (and similar) is people imposing their own definitions of recession. The Economist magazine had an interesting article on how US recessions are called, and gave a couple of examples where a recession was called with only one quarter of negative growth (1960, 2001, 2020).

They also added this

The NBER may call a recession, but it’s not at all clear that they will. Business investment is declining and personal consumption is growing. The Fed announced that industrial production increased in Q2 (here). This increase in production was despite a significant decline in inventories, just like Q1. Most of all, new unemployment claims are beginning to trend up but are still quite low.

An alternate view of economic activity is GDI. This looks at income, while GDP looks at activity. They track each other very closely, but for the past year, GDI has been much more positive and shows no sign of slowing. This is consistent with a strong labor market.

You are correct. We are using different definitions of of what constitutes a recession. I choose 2 consecutive negative quarters (which was the definition used since at least back when I was in high school), you are relying on NBER to call it. The definition I use says we have hit a recession, the definition you use will have to wait until NBER calls it, using their own criteria at a point of time that may be showing a recession happened and has already ended.

As I said in a different thread DD2 is having clients cancel hair styling appointments, so it's affecting my family now.

 

[38Chevy454]

Is there some sort of prize involved?

Yes, you get to ride the roller coaster as much as you like!

 

[Dtail]

Is there some sort of prize involved?

Yes, possibly who could get the closest to a political bent without the mods censoring the poster.

 

[Chuckanut]

Below is the definition from the National Bureau of Economic Research ("the horse's mouth"). I think they call it after its clear its already in, which some complain is not real-time enough.

Q: What is a recession? What is an expansion?
A: The NBER's traditional definition of a recession is that it is a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The committee's view is that while each of the three criteria—depth, diffusion, and duration—needs to be met individually to some degree, extreme conditions revealed by one criterion may partially offset weaker indications from another.
NBER FAQ's

I have no idea if we are in a recession. And, ever since I can remember the definition of a recession has been two straight quarters of negative economic growth. I don't recall anybody questioning this definition in the public. There were times when the statistical work to get the growth rate has been questioned - "Let's wait until we have the final numbers on widget production for June." Or the seriousness of the recession was very mild. Like many other things in life, the dosage dictates how poisoness something is.

 

[Chuckanut]

Inflation is the bigger danger to the economy and the democracy... if a mild recession is needed to whip inflation then I'm all for it.

+1 ^^^^^^^

Having lived through the double digit inflation of the 70's and 80's, I don't want to see it again. It only gets worse, as do the social and economic problems that feed off of it.

 

[copyright1997reloaded]

It is easy for people who are not working (retired) to not mind a recession as much as inflation.

My thesis remains: Economic conditions are deteriorating quickly, inflation will remain sticky but at perhaps a somewhat lower level -> resulting in the FED pivoting sooner rather than later.

 

[pb4uski]

Interesting article in NYT on the 2 consecutive quarter definition. I hope that the link works: https://www.nytimes.com/2022/07/26/...te=1&user_id=b685681543a24c3adaf2b160d24a744d

There’s a pretty good chance the Bureau of Economic Analysis, which produces the numbers on gross domestic product and other macroeconomic data, will declare on Thursday, preliminarily, that real G.D.P. shrank in the second quarter of 2022. Since it has already announced that real G.D.P. shrank in the first quarter, there will be a lot of breathless commentary to the effect that we’re officially in a recession.

But we won’t be. That’s not how recessions are defined; more important, it’s not how they should be defined. It’s possible that the people who actually decide whether we’re in a recession — more about them in a minute — will eventually declare that a recession began in the United States in the first half of this year, although that’s unlikely given other economic data. But they won’t base their decision solely on whether we’ve had two successive quarters of falling real G.D.P. ...