Here I am using what is the journalistic definition of a "recession," also used in many nations although not officially in the US, where these things are determined ex post by an NBER committee. Anyway, that "journalistic" definition is that there be two consecutive quarters of negative GDP growth. Today in the Washington Post I saw a story on global carbon emissions, which are very closedly correlated with GDP, if not perfectly. Anyway, it appears that global carbon emissions hit bottom on April 7 and have been slowly rising since then (not sure about US separately, although US somewhat behind most other nations on the covid curve and so on the economic impact as well). I note that April 7 is one week into the second quarter.
This means it is very likely that at the global level we shall see positive economic growth in the second quarter, basically rising since the end of the first week of the quarter, although due to reporting lags in many countries this will not show up as positive growth in the data until later, possibly by the end of the month. This growth is slow, but it is positive, definitely not a V.
So, assuming this slow growth continues,the world will have seen a massive shock in the first quarter, with most of that in a single month, March, the largest such short term shock in recorded history by far. But it looks that it may have hit bottom quite quickly, then to turn into a slow recovery shortly after the end of the first quarter. First quarter is certainly going to be negative, but second looks very well like it might be positive, at least at the global level, hence, not technically quite a "recession" according to this journalistic definition.
The US is a murkier story. I have not seen the carbon emissions data for the US (will go check) but I am aware of one variable that may have bottomed out in mid-April, credit card orders. That is not perfectly correlated with GDP, but strongly so. The WH has made noises about it and some other less significant variables that look to have at least turned around and may be going up by now. The big one that has, and that Trump in particular focuses on, is the stock market, which certainly has come back a lot from its bottom point in late March, although still some way to go to get back to its mid-February peaks. But it is volatile and could easily go back down again, not also to forget Paul Samuelson's old wisecrack that "The stock market has predicted the last nine out of six recessions."
The Trumpists are loudly proclaiming a V shaped recovery, which really does not look in the cards, although they might get some solid growth happening by election time in November. I suspect lots of variables and also official GDP will still be negative for April, but there are two months after April in the second quarter, and while it is almost certainly doing so slowly, US GDP is almost certainly growing along with most of the rest of the world's economy now. The US might also join most of the rest of the world in having a net positive growth figure for the second quarter, if small, but no "journalistic recession": as well.
Barkley Rosser
23 comments:
Well if 'recession' is not the right word, what would we call this event? Maybe a pandession? Economists are gonna have to call it something- there have been serious economic consequences. Something like 36 million people have filed for unemployment since March began. Make up a good word for it. Coronession?
We are Japan 2.0.
The Fed went crazy again.
We are Japan 2.0.
The Fed went crazy again.
[ Sorry, but this is nutty.
The Federal Reserve did just what was necessary to insure systematic liquidity, protect the bond market and immediately lower interest rates against the economic shock. I am sure the Fed is also discussing the prospect of quantitative easing now.
The Fed has performed perfectly so far. ]
Barkley Rosser:
Really interesting analysis, but I wonder if the decline in consumer transactions has been greater and will last longer than the analysis suggests. Credit card borrowings have fallen dramatically and data from, say, restaurants that have opened only show a limited activity so far leading me to think just opening does not necessarily mean taking up old patterns.
I note I tried to find recent carbon emissions data for US but could find nothing later than mid-April, which is when it might have hit bottom and turned around, or at any rate it would not have done so before then. In any case, I do not know where US stands on this measure, although I suspect it has hit bottom on both emissions and GDP and is rising for both, if slowly.
Whaa?
In the U.S. auto sales are down by half in April YoY; new construction starts are down by 29% YoY. In Feb. the official unemployment rate stood at 3.5% and there were 160 mn jobs. In the past 10 weeks 36.5 mn new unemployment claims have been filed. The April unemployment report was garbled by classification problems but the president of the MN Fed has said that he thinks the real figure is 23-24%. The latest bank analyst report from J.P. Morgan predicts an 11% decline in gdp for the first half, (1% from March, 10% in the second quarter), non-annualized. The latest IMF projection is that the U.S. economy will shrink by 5.9% for the entire year 2020 and China will grow by 1.2%. Much depends on the further course of the pandemic and so all projections are highly uncertain. but with all economies cycling down at the same tine, with supply chains, demand and financial payments simultaneously disrupted, it's clear that we are entering into a global depression of uncertain duration but with a long slow recovery, (since the end is the resumption of recorded growth, not a return to prior levels). And you want to base your prognosis on a very tentative study (as the authors state) of GHG emissions and a loose correlation between emissions and gdp growth?
Unemployment is a lagging indicator. There will be some sectors that are still in the midst of going down, notably state and local governments now confronting collapsing revenues. But many sectors have hit bottom and are now going up.
Again, note that US might have a negative second quarter even as world as a whole has a positive one as we are behind the curve. It may be that this odd bit of data will not carry over, but many major nations are definitely moving up; have the virus seriously under control and engaging in substantial reopenings that have a much better chance of sticking than what is going on in the US.
I just checked. Within the last three days 51 auto plants in the US have reopened for prouduction. Sales in April may have been way down from a year before, but what matters is not comparing with a year ago but with early April, and auto production is clearly up since then.
As of today, some ofthose US auto plants have shut down again due to having workers test positive for the coronavirus. Given the poor backup systems of testing, tracing, etc. in the US compared to other nations opening up before it (see especially China, although they now have a new lockdown in the Northeast due to an outbreak), the US may stumble in its effort to grow and recover and may well easily end up with a negative second quarter, even while most of the rest of the world has a positive one. The idiotic responses of many Americans to reopenings, jamming bars in Wisconsin and malls and churches elsewhere, is not surprising given the horrible example set by our president.
Here is more information on yesterday's story in the Washington Post, which has no national breakdowns. It has sectoral ones. It came out on Tuesday in Nature Climate Change by 13 authors, only three of them named in the articles: lead author Corinne La Quere, Director of Britain's Tyndall Climate Change Research Center, Rob Jackson of Stanford University, and Glen Peters of the Center for Global Climate Change Research in Norway, with the other 10 unnamed coauthors all part of the Global Carbon Project. The article is by Chris Mooney, Brady Dennis, and John Muyskens, appearing on p. A26 under the title, "Global greenhouse emissions plunged 17% in pandemic" in yesterday's Washington Post (May 20, 2020).
The overall global pattern since Jan. 1 was an initial drop into February, followed by a brief and small increase, then followed by a much deeper decline that bottomed out on April 7, which has been followed by a gradual increase. While the sectors had different early patterns, they all hit turning points arounf April 7 (one hit a peak then). The sectoral changes reported betweeen Jan. 1 and April 7 are as follows: surface transport -36%, power -7%, industry -19%, aviation -60%, public buildings -21%, and then the one positive sector, residential +3%.
Needless to say in the US at least unemployment continues to rise, and much of this may be happening in service sectors less tied to carbon emissions. Indeed GDP is not perfectly correlated with power, but the link is certainly very strong. And, again, especially in the US, given our especially bad policies and public behavior, we may experience an earlier and more serious second wave of the virus than other nations, leading to a stalling out and reversal of our barely nascent recovery.
https://www.nytimes.com/2020/05/21/business/economy/coronavirus-unemployment-claims.html
May 21, 2020
Many Jobs May Vanish Forever as Layoffs Mount
With over 38 million U.S. unemployment claims in nine weeks, one economist says the situation is “grimmer than we thought.”
By Patricia Cohen
Even as restrictions on businesses began lifting across the United States, another 2.4 million workers filed for jobless benefits last week, the government reported Thursday, bringing the total to 38.6 million in nine weeks.
And while the Labor Department has found that a large majority of laid-off workers expect their joblessness to be temporary, there is growing concern among economists that many jobs will never come back.
“I hate to say it, but this is going to take longer and look grimmer than we thought,” Nicholas Bloom, an economist at Stanford University, said of the path to recovery.
Mr. Bloom, a co-author of an analysis of the coronavirus epidemic’s effects on the labor market, estimates that 42 percent of recent layoffs will result in permanent job loss....
There is no guarantee for any nation that just because they have managed to return to growth they will get back to where they once were. Clearly many firms and possibly some sectors (cruise lines?) will simply disappear for good or be reduced to very little permanently.
Barkley Rosser:
There is no guarantee for any nation that just because they have managed to return to growth they will get back to where they once were.
[ I thought the argument was about a recovery already having started. The argument is clever and I would hope will be correct, but the argument was not that we will be after just as we were before only that we are recovering in all. The counter to the argument is that there has been so much structural dislocation that recovery will be years in the making and difficult unless there is added legislative and Fed assistance. ]
Barkley, I think this is an apples and oranges problem. The standard business cycle classifications reference a world in which triggers are relatively small (in a national income sense) and ripple effects are large. So a collapse in real estate sector in 2008 (significant but small in relation to the whole) progressively gave rise to a series of knock-on effects via the financial market, wealth, public sector employment and other channels. This took place over multiple quarters.
This year we've seen a catastrophic trigger; over the space of a few weeks national income here and elsewhere collapsed in an unprecedented fashion. Since then there have been both knock-ons (reduction in spending by laid-off workers, for instance) and modest releases of the trigger. The balance between these two differs cross-nationally and will continue to do so. (The US is almost certain to retrigger in a couple of months or so, unless men with guns who tell us the mortality numbers are fake prevent it.)
https://twitter.com/paulkrugman/status/1263550961269817344
Paul Krugman @paulkrugman
This is not good. Purchasing managers' index suggests sharp economic decline continuing 1/
https://www.markiteconomics.com/Public/Home/PressRelease/3ea9e157cc5d447c9ecbb1ad5037cbf6?s=1…
3:23 PM · May 21, 2020
The BLS suggested that technical issues may have caused the April employment report to understate the unemployment rate by as much as 5 points, putting the true rate close to 20. So are we now into the 20s? Great Depression levels 2/
Peter Dorman:
This year we've seen a catastrophic trigger; over the space of a few weeks national income here and elsewhere collapsed in an unprecedented fashion. Since then there have been both knock-ons (reduction in spending by laid-off workers, for instance) and modest releases of the trigger. The balance between these two differs cross-nationally and will continue to do so...
[ I favor this description, unfortunately. ]
People may have missed my point here, which has more to do with identifying how useless our standard classifications for macroeconomic phenomena are. We have indeed had this massive shock and collapse, as I noted, but it was so sudden and massive lots of the usual measures are gone cock-eyed and may have been rendered if not meaningless, then at least not too enlightening.
Into this I threw this curious datum about global carbon emissions, which, assuming it is accurate, would seem to indicate that at least for the sorts of activities that generate carbon emissions, they have in aggregate been expanding since early April, although not necessarily so in the US, which clearly lags the rest of the world in all this.
It is possible that we may see a disjuncture between sales and production, something that is not supposed to happen on any substantial basis usually. A prelude to this may have been China, where supposedly production got back to nearly normal quite quickly, at least in some sectors, while sales definitely lagged (not sure of current situation there on that). We may be seeing something similar in the US.
Again, keep in mind that this post looked at a global phenomenon with no data for the US, which I have not been able to obtain. Are emissions rising yet in the US? I do not know.
People may have missed my point here, which has more to do with identifying how useless our standard classifications for macroeconomic phenomena are....
[ I thought your essay was terrific, and have thought about it from the time you posted. I am however not convinced just what we can learn from the incomplete data. No matter, the essay is terrific.
A personal thought: I have fortunately fared well through this time, but I have nonetheless been shaken and having been shaken I will not return to my ordinary way of living anytime soon. This means I will be living more cautiously and if I am among very many that is going to have an economic impact that needs to be considered.
Barkley Rosser:
Terrific stuff... ]
It is possible for your country , like mine to have a depression ( a fall in output of 10% or more) but not a recession ( two successive quarters of negative growth) because of dreadful definitions.
N.T,
I am not sure there is a formal definition of a depression out there. I have not heard this 10% decline criterion before, although this may be useful. I have allways thought that this involved length as well as depth of decline, with both being greater than for a recession.
Historically the term "depression" way preceded "recession." The major downturns of the 1870s and 1890s were called "depressions," and I think the term may even have been used as early as the downturn that followed the "Panic of 1837," although that was almost certainly shallower and shorter than what happened in wither the 1870s or 1890s. As it is, the Great Depression exceeded any of those, in a sense setting a new standard.
It is my understanding, although I may be wrong, that the term "recession" appeared in 1937, with people wanting to make it clear that it was not as bad as 1929-33, and the term just sort of took off after that, given how awesome the GD was, and pretty much came to describe all downturns since, with even the pretty impressive one of 2007-09 not quite being bad enough on any count to get to be a "depression," but instead yet something new, the "Great Recession."
But then, N.T., you all Down Under there, have not had either for quite a long time.
Co-incidentally, it looks
like 'Economist's View' is
Down For The Count, again, alas.
What Happened to the Great American Logistics Machine?
https://www.nytimes.com/2020/05/22/business/logistics-supply-chains.html?smid=tw-share
NYT - David Segal - May 22
(Link above: 'Coronavirus as logistics lesson.')
... the coronavirus is offering a real-time demonstration of how to hopscotch the globe, with ease and speed. Exactly how it gets around is, to some degree, a mystery we are still solving. (Cats can give it to cats, a study published this month concluded.) But starting from an unknown patient zero, it has infected nearly five million people around the world in a matter of months, enlisting victims in its supply chain and deploying them as vehicles to get around.
( https://www.statnews.com/2020/05/13/cats-can-catch-covid-19-from-one-another-study-finds-the-question-is-can-we/ )
It is beating us at the logistics game and won’t wait for us to get our mojo back.
Fred C. Dobbs:
Please post here.
And Fred, please do not go out of your way to identify Anonymous as another old regular from Economists View did here recently. Neither necessary nor appreciated, but hi and welcome.
Post a Comment