Submitted by Econbrowser

Two months ago, I posed the question “What Are the Prospects for a Two Recession Bush Presidency?” I think the answer is indeed “pretty good”, given the recent data.

That being said, I think it might be useful to review the latest observations for the key series scrutinized by the NBER Business Cycle Dating Committee (BCDC): (i) personal income less transfers, (ii) nonfarm payroll employment, (iii) industrial production, and (iv) manufacturing and trade sales. In addition, the BCDC also pays attention to (v) Macroeconomic Advisers’ GDP series (see BCDC FAQs here)

Figure 1: Log personal income less transfers in 2000Ch.$ (blue) and log nonfarm payroll employment. Real personal income calculated by subtracting off transfers from personal income, and deflating by the personal consumption expenditure deflator. Source: BEA and St. Louis Fed FRED II, accessed 8 March 2008.

Figure 2: Log industrial production (blue) and log manufacturing and trade sales, in Ch.2000$. Source: Federal Reserve Board via St. Louis Fed FRED II, and BEA, accessed 8 March 2008. I don’t have the Macroeconomic Advisers monthly GDP series, but I do have the e-forecasting.com series. That GDP series has been flat for months.

Figure 3: Monthly real GDP, flash estimate, at SAAR. Source: e-forecasting.com, release of March 7, 2008.Summing up, all the core series save industrial production could plausibly be argued to have peaked (payroll employment is a bit hard to tell, but detail is here). While industrial production looks like it has plateaued, it’s important to recall that this series includes utilities (affect by the extreme winter); manufacturing production is clearly below its most recent peak in mid-2007. GDP looks like it has plateaued, rather than declined, but we know from previous experience that GDP tends to be revised down around turning points [1], [2].

So, I’ll echo Jim’s assessment: too soon to be sure, but chances are pretty darn good that we that we’re into the second recession of the G.W. Bush presidency.

It seems to me the next question of interest is whether the recession is likely to be short or long. I keep on seeing predictions of a short V-shaped recession [3], [4], [5]. Most macro forecasts do predict a resurgence in 2008H2 (just as CEA Chair Lazear alluded to in his last press conference). For instance, today’s Deutsche Bank forecast is for (-0.5%) and (-0.3%) in Q1 and Q2, respectively, with growth spiking in Q3 at 2.6% before settling at 0.9% in Q4. Still, with oil and ag commodity prices stubbornly high, the extent of the financial system turmoil uncertain, and the less-than optimally constructed fiscal stimulus limited to only one percent of GDP, I’m don’t think the 2008H2 acceleration will be a sustained one.

Late addition: Slowdown in U.S. Will Be Deeper, Recovery Weaker, Survey Shows, Bloomberg (March 11).

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