From the Wall Street Journal:
Price inflation gauges eased in the first quarter. For instance, the price index for personal consumption expenditures rose by 3.5% after increasing 3.9% in the fourth quarter. The PCE price gauge excluding food and energy rose 2.2%, after increasing 2.5% in the fourth quarter.
It's usually best to specify that you're using an annualized quarterly figure, or a year-on-year figure . . . otherwise, the readers are apt to start stockpiling gold in the basement.
On a more serious note, the economy actually grew last quarter, albeit by a miserly 0.6%. Outright recession is starting to feel somewhat less likely to me, though even if we technically dodge two quarters of economic contraction, I expect we'll see very slow growth for some time to come.
There's also the problem of how much of that inflation is rising oil prices, and the resulting productivity shock therefrom, and how much of it is Helicopter Ben opening the monetary spigots. The Fed is expected to cut again today, but if they let inflationary expectations get well and truly established, the cure will be worse than the disease.
You do understand that real GDP was negative for Q1 of 2008, right? And it is because of inflation!!
Hello stagflation?
Outright recession is starting to feel somewhat less likely to me
I'd really like to hear you explain what evidence has brought you to the above conclusion.
Inflation? Job growth? Consumer confidence?
Is it just the anemic .06 figure that's giving you a confidence boost? Because from reading the actual press release at the BEA website, I find this disturbing fact:
Real final sales of domestic product -- GDP less change in private inventories -- decreased 0.2
percent in the first quarter, in contrast to an increase of 2.4 percent in the fourth.
This, to me at least, is not evidence that we are less likely to be headed into recession.
Hello stagflation?
JKC--no, real final sales decreased; real GDP increased. In otherwords, inventories mounted. This is not unexpected during a slowdown.
This is not unexpected during a slowdown.
Well then Megan, if the GDP growth figure you cited of .06 is produced by rising inventories which is indicative of a slowdown, then I ask again, how did you reach this conclusion:
Outright recession is starting to feel somewhat less likely to me
?
What's your evidence/rationale for the conclusion (especially now that you've shown you understand the mounting inventory thing happens in slowdowns)? I'm intrigued.
"Outright recession is starting to feel somewhat less likely to me, though even if we technically dodge two quarters of economic contraction, I expect we'll see very slow growth for some time to come."-MM
As Greg Mankiw points out, the betting at intrade puts the probability of recession at 25%, which seems like a reasonable estimate. The case that many bears made for recession--that declining housing prices would cause a "massive retrenchment" in consumption--seems to be falling apart. Consumption has been much steadier than many predicted it would be. So has industrial production.
Also, the stock market has risen about 10% in the last 7 weeks, which augurs well for corporate profitability, and the index of leading economic indicators was up in March, after several months of decline. It's hard to know what will happen in the short-run, but the evidence gives some reason to think that this downturn will not be severe.
That said, real GDP per capita has declined slightly over the last two quarters. This would be a good time push through some permanent tax cuts, then, to revive economic growth. Unfortunately, we have a Congress that doesn't understand that people respond to incentives.
rwe,
So that graph that you posted in the link for industrial production looks promising to you?
I'm intrigued. I thought there was a clear pattern/cycle indicated by the graph and, as a result, I did not find that link reassuring as regards industrial production (especially given the mounting inventories Megan has mentioned).
Keatssycamore, yes, I think it's fair to say that industrial production has held steady. It certainly hasn't dropped sharply, as it did in each of the last four recessions.
Concerning inventories, as David Romer points out in his Advanced Macroeconomics, "inventory acumulation is on average large and positive at peaks, and large an negative at troughs." That is, businesses tend to let their inventories draw down when the business environment is bleak, but they will accumulate inventories when the economy is fine. So rising inventories are not a concern, since inventories are procyclical.
If you look here, you'll see that inventories are not behaving the way they tend to in recessions. Inventories tend to fall--not rise--during recessions.
As Yogi Berra said though, "it's tough to make predictions, especially about the future."
So I guess you will just have to wait and be shocked, shocked when first quarter GDP is revised downwards to -.6% or something... in November or December.
rwe,
So rising inventories are not a concern
Perhaps not in and of themselves, but you have to take into account not the amount of inventory but what is going on with the inventory-sales ratio.
A rising ratio means inventories are exceeding sales. A rising inventory-sales ratio is a leading indicator of declining conditions for businesses.
The inventory-sales ratio has been rising since about October 07 with a slight flattening over Christmas and then back to a steep climb. See graph and future forecast here.
So I guess you will just have to wait and be shocked, shocked when first quarter GDP is revised downwards to -.6% or something... in November or December.
Ron,
Especially since it's easy to read the BEA thing and see that the inflation deflator number they used on the GDP (the one that adjusts for the increase in GDP that results from inflation) doesn't appear to reflect reality. They used 2.6. I'd say it's at least double that number.
When this number reflects reality and the numbers are adjusted correctly in November or December, the GDP growth number will be revised downward. Dramatically.
Not that anyone would care, but I screwed up my math above. Doubling 2.6 equals 5.2, but I was thinking of 4.2 as a good inflation deflator number.
keatssycamore, you seem to be putting an awful lot of weight on what seem to me to be pretty small changes in one indicator (the inventory-sales ratio). These could simply be random fluctuations.
I notice that the ratio is actually lower than it was in the mid-90's, just as the economy was about to boom. I'd like to see a regression of GDP growth on this ratio (with a lag) before drawing inferences about the general state of the economy from small fluctuations in this one ratio.
Maybe you are right, but evidently investors generally disagree with you. The Dow rose about 100 points in response to today's economic data. And there are plenty of other indicators that lead to a different conclusion: Marriott, for example, reported very good revenues, mostly from abroad, but it also experienced decent growth in the US in RevPAR.
If you are very confident in your forecast, though, you should make a big bet on recession at intrade. You could make a lot of money.
Or else you could short equities. Personally, I'm long equities because--though I don't pretend to know what will happen over the next few months--I'm pretty confident that the American economy will be fine over the next few years. I expect healthy increases in profits at the companies I'm invested in.
rwe,
If you are very confident in your forecast, though, you should make a big bet on recession at intrade. You could make a lot of money.
You've no doubt heard it said, "It takes money to make money".
And, I assume, it goes without saying that a guy who can waste an hour or two commenting on a blog on a Thursday morning doesn't have much of it.
Barry Ritholtz says we are already in a recession. I take his word more than anyone of the commenters or Megan for that matter.
Okay keatssycamore, though it's a little surprising that someone who knows so much about financial markets and economic data doesn't have much money. Maybe you are fresh out of grad school, or maybe you decided with Socrates to pursue wisdom rather than wealth.
Regardless, you make some interesting points. I think Megan should have addressed them.
In early 2006 Barry Ritholtz predicted that the Dow would finish the year at 6800. Where did it actually finish? 12,460. So he was only off by 83%. Pretty good forecaster I'd say.
*Note, I tried to post the link but the spam filter wouldn't let it through. Anyone who wants to can find it by googling "Ritholtz Dow 6800".
Megan McArdle writes:
Absolutely.
The Wall Street Journal is bad about this. As far as I can tell its US journalists always use annualized quarterly figures while its European journalists always use quarterly figures without annualization. I guess it's one way to make anemic European figures look even more iron-deficient. Of course, neither US nor European writers use per-capita figures which, given far higher US immigration rate, affects relative growth rates.
Also, are there any reliable studies or even informed speculation on what percentage of the dollar's fall over the last 8 mos or so against major international currencies might be attributable to recent interest rate cuts, and in turn, how much of the increased price of oil can be attributed to the tanking dollar?
Okay keatssycamore, though it's a little surprising that someone who knows so much about financial markets and economic data doesn't have much money. Maybe you are fresh out of grad school, or maybe you decided with Socrates to pursue wisdom rather than wealth.
Chalk that up, at least partially, to another well-known saying, "Doesn't play well with others."
Regardless, you make some interesting points. I think Megan should have addressed them.
Thanks, rwe, but a Megan response would likely be more frustrating than her original evidence-free "no recession" prediction. The classic Megan answer would no doubt shift the goal posts, tell me I didn't understand what she was really claiming b/c I didn't go to Penn, and then blame me for being sexist because I asked a question that provides but one example of a woman (Megan) not thinking before she posts stuff like:
Outright recession is starting to feel somewhat less likely to me,
So I'm fine with not getting an "answer" from Megan, but appreciate your give and take with me.