Posted by Jim Lindgren:
Has a recession already started?--
http://volokh.com/archives/archive_2007_12_30-2008_01_05.shtml#1199509829
Are we in an economic recession?
According to [1]figures released by the Dept. of Labor Friday morning,
December civilian unemployment jumped three-tenths of a percent from
4.7% to 5%, representing a .6% increase over the March 2007 rate of
4.4%.
According to [2]historical statistics, since 1948 there have been 160
months when there was a .6% or greater increase in the unemployment
rate over the trough (minimum) unemployment rate of the prior 9
months. Every single one of these 160 indicator months fell before,
during, or after one of the [3]10 recessions since 1948.
Looking at the 10 recessions, this .6% indicator coincided with the
start of the recession in one case (1980), with the 3d month in two
cases (1970 & 1990), and with the 4th month of the recession in four
cases (1953, 1981, 1974, & 2001). In three of the ten cases, the
indicator preceded the recession: in 1957 the indicator month preceded
the recession by 2 months, in 1959 the indicator month preceded the
recession by 6 months, and in 1948 (the first year of my data) the
indicator month preceded the recession by 8 months.
In other words, since the 1960-61 recession began in April 1960, every
one of the 115 months with an unemployment rate .6% higher than one of
the prior 9 months was either during a recession or in the aftermath
of a recession.
Further, in every recession cycle, in the first month that included
both a .3% jump from the immediately prior month and a .6% increase
over the trough of the prior 9 months, we were already in a recession
by the time the data was reported (in the following month).
If the past is any guide to the future-- and anyone doing backtesting
knows that it often isn�t�then we are probably already in a general
recession (or will be in one by August at the latest).
This conclusion is consistent with some [4]work I did last summer
showing that since World War II, substantial housing declines always
preceded or coincided with recessions:
Since World War II, there have been three sharp housing price
declines (in real dollars):
the 1947-48 housing price drop, preceding the Nov. 1948 � Oct. 1949
recession, the 1979-82 housing price drop, preceding the July 1981
� Nov. 1982 recession (and also coincident with the Jan.-July 1980
recession), and the 1989-91 drop, associated with the July 1990 -
March 1991 recession.
Caveats:
1. A recent survey of top money managers, CNBC�s [5]Trillion Dollar
Survey, found that 98% of the 60 experts surveyed put the chances of a
recession in 2008 at 50-50 or less. As someone with far less expertise
than they, I would put the chances of a recession in 2008 at perhaps
75-90%. While (social) science does not work by consensus, a wise
person should probably give more weight to the opinions of 59 of the
60 experts than to my opinion (shared by only one of the 60 experts
surveyed by CNBC.
2. The unemployment data is frequently revised up or down a little
based on later data, so the 5% December unemployment rate may change.
Thus, the indicator I use here may disappear (though even a .5%
increase to 4.9% is usually associated with a recession).
3. Because unemployment often continues to rise long after a recession
officially ends, I needed to use a cut-off for determining the length
of the aftermath of a recession. I treated recession unemployment as
having peaked (and a new cycle resetting) when (1) the recession has
ended, (2) the .6% indicators cease, and (3) unemployment drops to a
level at least .3% below its peak from the prior 12 months.
References
1. http://www.bls.gov/news.release/empsit.nr0.htm
2. http://data.bls.gov/cgi-bin/surveymost?ln
3. http://www.nber.org/cycles.html
4. http://volokh.com/archives/archive_2007_08_12-2007_08_18.shtml#1187326667
5. http://www.cnbc.com/id/22493090/site/14081545
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