Market Sentiment - Recession Length

[pb4uski]

And it's even worse when you look at real world inflation vs. the lower government figures. I hear that income is up, yet it's actually down when factoring in inflation, and that's even using the government inflation figures, which make it seem better than reality.

And just what is the authoratitive source for your "real world inflation"? Or is "real world inflation" anecdotal based on GenXguy's experience and view of the world?

I'm pretty sure that wherever it was reported that income was up that it was also indicated that it was nominal income and not real income.

Wrong, that is absolutely NOT the case.

Ok, I'm confused. What Michael posted indicates that personal income in current dollars increased 0.6% in June... so I stand corrected it was real income and not nominal.

Yet you (GenXguy) wrote that income was up but it was actually down when factoring in inflation... that is false. It was up after considering inflation. It seemed to me that you were suggesting that the announced increase in income was somehow misleading... but it wasn't.

 

[Koolau]

Thank you, that worked.

Mr. Krugman and I don't see eye to eye on a number of things, but I think he's very smart and articulate and interesting to read.

All true. Now, if he were just right occasionally...

 

[GenXguy]

Ok, I'm confused. What Michael posted indicates that personal income in current dollars increased 0.6% in June... so I stand corrected it was real income and not nominal.

Yet you (GenXguy) wrote that income was up but it was actually down when factoring in inflation... that is false. It was up after considering inflation. It seemed to me that you were suggesting that the announced increase in income was somehow misleading... but it wasn't.

Not true. It took me less than a minute to find this, which supports what I was saying about wages being down when factoring in inflation (real wages):

Real average hourly earnings decreased 3.6 percent, seasonally adjusted, from June 2021 to June 2022. The change in real average hourly earnings combined with a decrease of 0.9 percent in the average workweek resulted in a 4.4-percent decrease in real average weekly earnings over this period.

https://www.bls.gov/news.release/realer.nr0.htm

Real average hourly earnings for all employees decreased 1.0 percent from May to June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from an increase of 0.3 percent in average hourly earnings combined with an increase of 1.3 percent in the Consumer Price Index for All Urban Consumers (CPI-U).

 

[MichaelB]

Why doesn’t everyone lighten up with the “false” and “not true” accusations, they are unhelpful. Take some time to read and try to understand what others are posting.

Personal Income is the total amount of wages paid to workers, along with other income, such as rent and investments. It also includes wage increases and additions to the work force, Average hourly earnings are just the change in the average of all wages. Both can rise, or one can rise and the other fall. They are two different and independent measurements.

 

[Markola]

All the recession talk and yet, here in Minnesota we have the lowest-in-the-nation unemployment rate of 1.8%! Our state’s growth is in danger from too few workers available for all the work. Interesting times.

 

[Bigdawg]

All the recession talk and yet, here in Minnesota we have the lowest-in-the-nation unemployment rate of 1.8%! Our state’s growth is in danger from too few workers available for all the work. Interesting times.

and the 7th highest labor participation rate at 67.6%. Go Gophers! 2 bad the Twins will of course lose to the Yankees in the first round again. Maybe the Vikings will lose their 5th Super Bowl. Who knows.

 

[pb4uski]

And it's even worse when you look at real world inflation vs. the lower government figures. I hear that income is up, yet it's actually down when factoring in inflation, and that's even using the government inflation figures, which make it seem better than reality.

And just what is the authoratitive source for your "real world inflation"? Or is "real world inflation" anecdotal based on GenXguy's experience and view of the world?

I'm pretty sure that wherever it was reported that income was up that it was also indicated that it was nominal income and not real income.

Not true. It took me less than a minute to find this, which supports what I was saying about wages being down when factoring in inflation (real wages):

https://www.bls.gov/news.release/realer.nr0.htm

Real average hourly earnings for all employees decreased 1.0 percent from May to June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from an increase of 0.3 percent in average hourly earnings combined with an increase of 1.3 percent in the Consumer Price Index for All Urban Consumers (CPI-U).

Thanks for doing the reasearch to prove me right. On a nominal basis average hourly earnings increased 0.3% but the increase was offset by a 1.3% increase in inflation, resulting an a 1.0% decrease in real average hourly earnings.

I said "I'm pretty sure that wherever it was reported that income was up that it was indicated that it was nominal income" and it was... they just didn't use the term nominal but the 0.3% increase was clearly indicated as before adjustment for inflation, which is nominal by definition.

I never claimed that real income wasn't negative, with inflation so high that would be intuitively obvious.

The quote perfectly explains it and doesn't try to hide anything at all as your post suggested.

BTW, still waiting for citations for the "real world inflation" claim.

 

[GenXguy]

Thanks for doing the reasearch to prove me right. On a nominal basis average hourly earnings increased 0.3% but the increase was offset by a 1.3% increase in inflation, resulting an a 1.0% decrease in real average hourly earnings.

I said "I'm pretty sure that wherever it was reported that income was up that it was indicated that it was nominal income" and it was... they just didn't use the term nominal but the 0.3% increase was clearly indicated as before adjustment for inflation, which is nominal by definition.

I never claimed that real income wasn't negative, with inflation so high that would be intuitively obvious.

Wow, you're doing some serious back pedaling now. You must have forgotten that up above, you said that income was up factoring in inflation.

Yet you (GenXguy) wrote that income was up but it was actually down when factoring in inflation... that is false. It was up after considering inflation.

Anyway, I think enough has been said about that now that I've provided a reference that supports what I stated about real wages dropping.

 

[Markola]

and the 7th highest labor participation rate at 67.6%. Go Gophers! 2 bad the Twins will of course lose to the Yankees in the first round again. Maybe the Vikings will lose their 5th Super Bowl. Who knows.

Yes, we are comfortable with our status as the Land of 10,000 Lakes and 2 Vice Presidents (neither of whom was Spiro Agnew). [emoji51]?

 

[MichaelB]

Here’s an interesting research note from BoA dated 7/29 and titled “ Are we in a recession and will the Fed respond?” https://business.bofa.com/en-us/con...ghts/global-economy-outlook-and-forecast.html

It looks at the criteria used by the NBER

A clear loss of momentum but we aren’t in a recession yet
Is the U.S. in a recession? A “technical recession” is defined as two consecutive quarters of negative GDP growth. Although the economy now meets this criterion, we do not think the National Bureau of Economic Research (NBER) will conclude that the economy was in recession at any stage in 1H ’22. As illustrated above, all six monthly indicators that the NBER uses to make its recession call have expanded since last December. While we may not be in a recession yet, economic momentum has clearly slowed.

It also looks at the difference between GDP and GDI. As noted in previous posts, incomes continue to show resilience and this is one likely cause of the differing views.

 

[Montecfo]

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

It sounds like a lot of nonsense, not that I am surprised.

All this pretzel logic to redefine the term "recession" is by politicians and their mouthpieces.

I was dismayed to see JPowell use this type of language. Come on, the Fed is supposed to be calling balls and strikes, not carrying water.

And an underlying message I got from it was that we should fear inflation because the Fed does not plan to do much about it this year.

I hope I am wrong but the signal is rather clear.

 

[DJRR]

It sounds like a lot of nonsense, not that I am surprised.
All this pretzel logic to redefine the term "recession" is by politicians and their mouthpieces.
...
I hope I am wrong but the signal is rather clear.

But there's the rub, it is not clear. The NEBR is the equivalent of the politburo making central planning decisions based on what happened. The 2x quarter is the capitalists trying to figure out what is going on now and how to adjust for it.

Politics is cherry picking your data points. If you want to blame the last administration for inflation you focus on 75% reduction in legal immigration, large increase in tariffs, not resisting Russian aggression in Syria, having a botched covid response that left millions dead and disabled, etc. If you want to blame the current administration you focus on not undoing the previous policies fast enough/going far enough (progressives), the stimulus, not resisting Russian aggression last time in Crimea, energy rhetoric that clouds ROI decisions, etc. No one knows what data is most important. We do know that the US market does a much better job at reading the mess than the politburo, but it is not clean.

For example. I got a 25% raise, and top performers got similar, clearly way above inflation. My company kept total wage growth to 3% and we have open positions we can't fill. A lot of people left for other jobs (4 million per month nationally); I don't think they were leaving for pay cuts. Our backlog is shrinking. We will either get a lot more productive, begin to win more work at higher rates and hire more people, or begin to win more work at lower rates and begin a death spiral with our competitors. You can place your bets but unknown at this point. So far so good, but that is what they said about just in time inventory. It works until it doesn't.

 

[Magus]

But there's the rub, it is not clear. The NEBR is the equivalent of the politburo making central planning decisions based on what happened. The 2x quarter is the capitalists trying to figure out what is going on now and how to adjust for it.

Politics is cherry picking your data points. If you want to blame the last administration for inflation you focus on 75% reduction in legal immigration, large increase in tariffs, not resisting Russian aggression in Syria, having a botched covid response that left millions dead and disabled, etc. If you want to blame the current administration you focus on not undoing the previous policies fast enough/going far enough (progressives), the stimulus, not resisting Russian aggression last time in Crimea, energy rhetoric that clouds ROI decisions, etc. No one knows what data is most important. We do know that the US market does a much better job at reading the mess than the politburo, but it is not clean.

We can get a pretty good idea of the impact on things. For example, the tariff increases was around a $20-$25 billion impact on a $23T economy - and some of that was borne by the foreign producer country - effectively no impact on inflation in the aggregate (~0.1% spread over several years) . Most of other things you mentioned for both presidents are similarly small impacts on inflation.

Meanwhile, the Federal Reserve increased the money supply by 30% in 2020 and both the current and the last administration spend several trillion collectively in covid stimulus (via debt largely monetized by the Fed res). This was the true short term cost of the shut downs (long term will be that + the educational setbacks) and what is driving basically all of the current inflation. In europe, there is more impact from Russia but its just not that big here in the US - especially since the price of oil is back to where it was just before the invasion.

 

[pb4uski]

In any event, the problem with rigid rules like two consecutive quarters of negative GDP growth is that you could have two consecutive -0.01% quarters declared to be "a recession" when other factors point differently... which is why it is foolish to rely on rigid rules to make important decisions.

 

[Gumby]

In any event, the problem with rigid rules like two consecutive quarters of negative GDP growth is that you could have two consecutive -0.01% quarters declared to be "a recession" when other factors point differently... which is why it is foolish to rely on rigid rules to make important decisions.

It's also foolish to give the word "recession" such talismanic meaning. The current numbers are what they are. Business conditions are what they are. Trends are what they are. If, based on those numbers, conditions and trends, you feel you need to take action with respect to your portfolio, then just do it. Arguing over a word is silly and unhelpful.

 

[pb4uski]

... Anyway, I think enough has been said about that now that I've provided a reference that supports what I stated about real wages dropping.

Whatever, but we're still waiting for that evidence on "real world inflation" being much worse that what was reported.

 

[corn18]

It's also foolish to give the word "recession" such talismanic meaning. The current numbers are what they are. Business conditions are what they are. Trends are what they are. If, based on those numbers, conditions and trends, you feel you need to take action with respect to your portfolio, then just do it. Arguing over a word is silly and unhelpful.

I was contemplating why I care if we are in a technical recession or not. I determined I don't care for my personal financial situation. But the country should care. What do you not do in a high inflation/shrinking economy? Deficit spend. The $900B bill is stupid. And the elected officials who want to pass it are touting it as beneficial because we aren't in a recession. That is just stupid.

 

[pb4uski]

I was contemplating why I care if we are in a technical recession or not. I determined I don't care for my personal financial situation. But the country should care. What do you not do in a high inflation/shrinking economy? Deficit spend. The $900B bill is stupid. And the elected officials who want to pass it are touting it as beneficial because we aren't in a recession. That is just stupid.

Corn, where are you seeing $900B of spending? What I am seeing is:

Total raised: $739 billion

• $313 billion — The legislation will raise revenues in part by imposing a corporate minimum tax of 15 percent.
  
• $288 billion — The agreement calls for prescription drug pricing reform, which will allow Medicare to negotiate drug prices. Out-of-pocket costs will be capped at $2,000, the agreement summary says.
  
• $124 billion — This revenue will be raised through Internal Revenue Service tax enforcement.
  
• $14 billion — The two senators said the bill would raise these funds by closing the carried interest loophole. In the agreement, they note that there will be no new taxes imposed on families making $400,000 or less and that they are making the “biggest corporations and ultra-wealthy pay their fair share.”

Total investments: $433 billion

• $369 billion — The legislation would contribute this amount in energy and climate provisions, which Manchin and Schumer said would “invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030.”
  
• $64 billion — The remaining investment is the estimated cost of three years of subsidies for Affordable Care Act premiums — an increase from the two-year extension Manchin had originally agreed to.

 

[38Chevy454]

$900B vs $739B, I think the point is *any* additional government spending and subsequent increased debt is a bad choice now. All the government spending is what (mostly) got us into the current inflation problem.

 

[Gumby]

$900B vs $739B, I think the point is *any* additional government spending and subsequent increased debt is a bad choice now. All the government spending is what (mostly) got us into the current inflation problem.

You should look at pb4uski's post again. The $739 billion is taxes. The spending part is $433 billion. It's a net negative spend.

 

[madatrub]

I think the bigger issue with this bill is dubbing it "Inflation Reduction Act".

 

[Magus]

Whatever, but we're still waiting for that evidence on "real world inflation" being much worse that what was reported.

Easiest way is just to plug in what housing / rents have actually gone up in the last 12 months (~20%) instead of the 5% CPI says it has and that will bump up the overall CPI # by ~3%. CPI also assumes substitutes as prices rise to lower the inflation rate (change made during the reagan years) and improved technology (your Iphone 13 may cost 10% more than the iphone 10 did but its 10% faster/better camera so its the same cost - changed made during the Clinton years), which probably help keep inflation down 1-2% further.

 

[Magus]

Regardless of whether NBER declares we are in a recession or not, 66% of Americans believe we are in one (or worse) as of this week vs just 27.5% who do not think we are in one which tells you where the consumer's head is at.

https://www.suffolk.edu/-/media/suf...hash=4F682989707021DD87FA56D227603197F8E43228

 

[Montecfo]

You should look at pb4uski's post again. The $739 billion is taxes. The spending part is $433 billion. It's a net negative spend.

Rasing taxes during a recession. Increasing spending with high inflation. Picking economic winners and losers.

It is unwise regardless.

 

[pb4uski]

Total raised: $739 billion

• $313 billion — The legislation will raise revenues in part by imposing a corporate minimum tax of 15 percent.
• $288 billion — The agreement calls for prescription drug pricing reform, which will allow Medicare to negotiate drug prices. Out-of-pocket costs will be capped at $2,000, the agreement summary says.
• $124 billion — This revenue will be raised through Internal Revenue Service tax enforcement.
• $14 billion — The two senators said the bill would raise these funds by closing the carried interest loophole. In the agreement, they note that there will be no new taxes imposed on families making $400,000 or less and that they are making the “biggest corporations and ultra-wealthy pay their fair share.”

Total investments: $433 billion

• $369 billion — The legislation would contribute this amount in energy and climate provisions, which Manchin and Schumer said would “invest in domestic energy production and manufacturing, and reduce carbon emissions by roughly 40 percent by 2030.”
• $64 billion — The remaining investment is the estimated cost of three years of subsidies for Affordable Care Act premiums — an increase from the two-year extension Manchin had originally agreed to.

Rasing taxes during a recession. Increasing spending with high inflation. Picking economic winners and losers.

It is unwise regardless.

I disagree. I look at each item individually. From what I have heard, the proposed corporate minimum tax will prevent corporations from using certain tax credits to totally offset the taxes that they owe... so effectively scaling back corporate welfare. I'll admit that it is a mystery to me how prescription drug reform results in revenue... I need to learn more about that one. I'm fine with better IRS enforcement... not really a revenue enhancement that will reduce economic activity. And I have long favored reforms to the carried interest loophole and it is chump change in the whole scheme of things. With all the adverse weather events that we are experiencing to improve our efforts at climate change initiatives seems sensible to me. I would have thought that ACA subsidies were already the law of the land and baked into the cake so I'm not sure why that is considered "new" spending, but perhaps it wasn't fully funded in the past.

Also remember that each of these numbers are 10 year numbers and who knows how it is loaded to near-term years vs further out and that has a significant impact on any "recessionary" impact. The enhanced IRS enforcement efforts will take time because they don't currently have the staff to do that work. The reality may be that the climate change spending is actually loaded to later years to the extent that those projects take time and planning, so the actual spending may be well after the current recession is over.

IOW, its complicated.