The National Bureau of Economic Research has announced that the country went into a RECESSION in December of 2007. A RECESSION, as I have always assumed, is when you have two consecutive quarters of a reduction in Gross Domestic Product.
In the 4th quarter of 2007, the Gross Domestic Product declined. However, disappointing economists everywhere, the GDP actually rose in the 1st and 2nd quarters of this year. The 3rd quarter of this year produced a declining GDP. But again this is only a single quarter. One might speculate that we would see a declining GDP in the 4th quarter of this year, putting us into a RECESSION, but that’s not the rules. The data must show this.
The NBER website admits that the GDP rose as I described, but leans on the employment data as proof that the economy did in fact peak in December of 2007. This ended a 73 month expansion of the economy and the beginning of a contraction in the economy. So why do they go against the ‘classic’ definition of a RECESSION? Because they can. I go by the “Two consecutive down quarters in GDP” definition, but there really are no clear cut rules.
I still say that even if this doesn’t fit my model for a RECESSION, that does not necessarily make this a USEFUL announcement. I mean, they are telling us that we’ve been in a recession for a year. Haven’t we been listening to the news tell us for more than a year that the economy either is or is not but certainly will be in a RECESSION.
I mean, the economy to many people is their job and their 401k. They are afraid for their job if they still have one and their 401k is toast. Even mine is worse now than when I posted this. Whatever.
Who needs the NBER to tell us that our economy is contracting when I can pop up a 1 year chart of the S&P 500 and tell them that they’re months late with this information.
I mean, thanks for all the hard work and number crunching fellas, but really, I’m ok. (If by ‘ok’ you mean bitter and sarcastic)
I believe it is important to note that many traders have said that GDP is a backward looking indicator. Which to a trader is a nice way of saying “useless”. It is also good to know that the NBER is really not interested in your 401k. They are an economic research firm and they do not care much for the stock market.
One very important note about the NBER news release compared to the coverage of the release on CNBC.com. CNBC and other news outlets will have you believe that the NBER expects this to be a long RECESSION. Well to be honest, according to the data it already may be. But this is not what the NBER actually says – they do not forecast. It is merely the same media pundits that spout off about the economy that say it will be a long RECESSION.
They say this the same way you or I may say that our teams will never win another game because of how badly they played in the last one. I am not here to necessarily disagree with any of them – what do I know about when the economy will expand again? If you are an investor or trader, then let the markets dictate the trading action. This is a tough market and it will not be kind. But the market will give you much more timely data than the talking heads discussing the length of the RECESSION. Just tune them out as ‘noise’ and pay attention to the action taking place on your Bloomberg terminal.
There are plenty of forward looking economic indicators out there – consumer spending and real hourly earnings come to mind. To stay focused on the evil RECESSION word is a little silly to an active student of the markets.
I will leave you with this, because I found this particularly interesting. It is a table on the NBER website that tells you the start and finish and length of each economic expansion and contraction in US history going back to 1854. OK, there I go being backward looking ….
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