13 thoughts on “Wall Street Economists Prognosticate: Trade Deficit, Recession Dating”
Willie
Here are some observations and questions regarding recessions:.
Observations:
1. My average knuckle dragger rule of thumb is that everyone knows it’s a recession long before the official recognition that there’s a recession.
2. The recession is generally over once the official recognition happens.
3. There’s endless discussion about how great the economy is while we are slipping into recession.
4. Discussion of how awful the recession is continues until the recession is well over and the end has been noted by us average kunckle draggers.
5. There has been chatter in the mainstream press about economic woes here and there.
6. There is some baseline that seems to be the minimum economic growth necessary to boost a sitting president or candidate of the same party as the sitting president to election victory.
7. This kunckle dragger has not seen signs of recession just yet. Slowdown in construction and real estate activity, perhaps, but not a huge amount yet.
Questions:
1. Did the Trump tax cut and other sugar buzz producers push 2019 and 2020 growth into 2018?
2. Will the current realization that the “tax cut” wasn’t as advertised have an effect on growth for the next couple years as people settle into a new equilibrium?
3. Did the Trump tariffs and other self inflicted economic wounds push 2018 growth forward into 2019 and 2020?
4. Is the “uncertainty” factor that was touted as killing growth in 2009 or so, but failed to kill growth, going to kill growth now?
5. Does speculation regarding recessions indicate that we are already on our way, or is it proof that we had a slowdown and are on our way out?
6. What will the GOP and administration do to boost the economy as much as possible in 2020, and what will the effect be?
As a strictly outhouse economist, I’m curious to know what the real thing, namely Menzie and the others who comment here, have to say about these things. Your crystal balls may be at least clear lexan. My crystal ball is cloudy cheap plastic at best.
JBH
Willie:
Q1 In late-stage expansion the presumption must be that there is no pent-up demand. Thus any fiscal stimulus requiring debt which will not productively pay for itself steals from the future. As well, if the fiscal stimulus is sourced from monetary policy, and this ultimately causes monetary policy to add liquidity beyond the optimal amount, this too steals from the future.
Q2 By and large, the answer to this is subsumed in the answer to Q1. One way to better understand the impact on future growth is to be aware of the credit impulse, the second derivative of the level of credit. The source data can be found in the Fed’s quarterly Z.1 release, d3.cvs from the Excel download thereof. Both private sector total credit and public and private sector total credit should be looked at in level, year-over-year change in the level, and credit impulse which is the year over year change in the change in the level. Further, these must be looked at as ratios to nominal GDP.
Q3 This is an excellent question. I would prefer to use a different metaphor. You’ve got to crack eggs if you wish to make an omelet. Now the answer here can go one of two ways. It depends. What it depends on is whether or not when all the dust has settled the US trade deficit gets lowered. Which pretty much translates into reducing the negative net export component of GDP.
Q4 My work around the uncertainty metric of Bloom et al is that it has little statistical significance with the movement of any of the economic aggregates. Menzie will have a different reading on this.
Q5 Speculation about recession is evidence that recession is more possible than had been thought before there was any such speculation. It is helpful to think of all forecasters, analysts, and pundits making up a universe. In this universe, there will be a distribution of recession views. Someone is going to see first. Someone second. And so on. So the probability of recession in the minds of the forecasting universe will rise as the economic data come out weak. Here are the average probabilities according to the WSJ consensus by month: 15,15,16,18,18,18,18,20,22,25,25,25,26. The final number being April. Hence there is no evidence per the views of experts that this was just a slowdown, and growth is going back to norm in Q2 and beyond. I would add my own view to this, which is that Q2 will be something of a dead cat bounce from the Q1 lull. And that growth will trend lower and lower thereafter.
Q6 Another truly excellent question. What readers and posters on this site do not understand is that a storm is about to break, the likes of which have never been seen in this country. Trump is going to out high level members of the deep state, who will then appear before federal grand juries and military tribunals in Guantanamo. The hermetically sealed minds of so many on this site can by that very fact not conceive of this. There are four conditions that needed to be met before this happens. One was fulfilled when Mueller presented his final report to the Attorney General. Another was Trump assuring that the US Senate remained in Republican hands – for the reason that it is the Senate that confirms top appointees. A third was being assured of conservative leanings in the Supreme Court. When RBG dies, the court will in short order go from 5-4 to 6-3 in Trump’s favor. I know precisely the fourth condition, but will not say what it is on this site. It is the fourth condition that will drop the green flag. Any meaningful answer to this question as you present it must take cognizance of the storm that will break before calendar 2020. How that storm will affect the economy in 2020 is tremendously hard to predict.
Final point. There will be a recession in 2020. Growth of real GDP in this four-year term may will fall below growth of the prior 8 years. (This is the key criterion based on work going all the way back to Abe Lincoln. Trump also lost an important key by not getting 51% or more of the popular vote in the last election. This is a generalized answer to your question in the form of Trump is by no means a shoo-in for a second term. The wild card – and this is the big one – is what happens when the aforementioned storm breaks.
Your crystal ball may be cloudy, Willie. But this set of questions is far above the norm. If others would raise questions as germane and as sensible, this website would get a big boost in terms of relevance and readership. My opinion, of course.
noneconomist
The “breaking storm” which requires you seal your lips on this site? Why start now? If you have such PRECISE knowledge, what’s stopping you? You’re already on board with predicting those 298, 001 indictments that will shake western civilization to its core.
The real danger posed by a “breaking storm” is the one sure to break. In your head.
2slugbaits
noneconomist JBH can’t say because the Russian oligarchs will put a hit on him if he reveals the Putin/Trump plan to sell out Amerika. The first trumpet horn will usher in the coming apocalypse when RT and FoxNoise merge. Then the National Art Gallery will feature Crony Capitalist Realism art, with images of bold and happy rentiers showing the way to a glorious future, all under the watchful eye of Dear Leader Donald, flanked by Princess Ivanka. Komrade Donald will declare that all art must be philistine, gaudy and gold plated. Women who aren’t at least a 7 will be sent to the Trump Plastic Surgery Clinic. It will be the Gotterdammerung of the Liberal Elites.
ilsm
2Slugs,
Wagner will be popular again……… “Flight of the Valkyrie” and if you think Elmer Fudd, off to the Gulag!
Willie,
Being an experience knuckledragger…. I am impressed.
Moses Herzog
Hahahaha!!!! I nearly always enjoy the tenor of your comments. And they usually happen to be spot on as well. I think maybe JBH watched too many Glen Beck blackboard and chalk expositions. All the chalk drawn arrows lead to Kookytown.
noneconomist
He discovered his toothpaste contained flouride, and he’s been on a downward spiral ever since.
Now, GDP growth has been steady for the past 6 years, while wages, median weekly earnings and employment have all been growing.
Federal budget deficit is expanding and investment is growing. https://fred.stlouisfed.org/series/GPDI
Unless the trade deficit expands significantly, what would cause a recession?
JBH
Menzie: Here’s a statistical question. How possible is it for 60 respondents to a survey to have an average probability of recession of 26% (over the 12 months from survey date I presume), and yet for this pie chart to be right?
JBH: Inspecting actual data, one sees US net exports increased as a share of US GDP for the first year of the last recession…
JBH
Observe world: Willie articulates a very well thought out set of questions about the economy — on this site devoted to the economy. Which the socialist vast majority of commenters here proceed to ignore. And instead maliciously attack president Donald Trump and his daughter! All the while Western Civilization is burning down on an island in the Seine. And once pristine Sweden has become the rape capital of Europe. While the commenters here with their multicultural BS are aiding and abetting it whether they know it or not.
2slugbaits
JBH Willie’s questions were fine and have been discussed in other threads. As to the fire on the Seine, I don’t quite see how that is related to economic issues or the collapse of Western Civilization. The only connection I see between Trump and the Notre Dame fire is Trump’s laughably ridiculous comment about flying tankers over the fire. So not only does he think he’s a financial wizard and a military genius, now he wants to play Fire Chief Trump. As to rapes in Sweden, Stockholm should be thankful that President Trump hasn’t visited Sweden, thereby contributing to additional sexual assaults on women.
noneconomist
You get the feeling he’s waiting for “a communist “ to set a fire in the Capitol so that Trump can issue an executive order barring all 231 communists from taking their elected spots in the House and the 47 communists from doing the same in the Senate? Hoping history repeats itself?
Here are some observations and questions regarding recessions:.
Observations:
1. My average knuckle dragger rule of thumb is that everyone knows it’s a recession long before the official recognition that there’s a recession.
2. The recession is generally over once the official recognition happens.
3. There’s endless discussion about how great the economy is while we are slipping into recession.
4. Discussion of how awful the recession is continues until the recession is well over and the end has been noted by us average kunckle draggers.
5. There has been chatter in the mainstream press about economic woes here and there.
6. There is some baseline that seems to be the minimum economic growth necessary to boost a sitting president or candidate of the same party as the sitting president to election victory.
7. This kunckle dragger has not seen signs of recession just yet. Slowdown in construction and real estate activity, perhaps, but not a huge amount yet.
Questions:
1. Did the Trump tax cut and other sugar buzz producers push 2019 and 2020 growth into 2018?
2. Will the current realization that the “tax cut” wasn’t as advertised have an effect on growth for the next couple years as people settle into a new equilibrium?
3. Did the Trump tariffs and other self inflicted economic wounds push 2018 growth forward into 2019 and 2020?
4. Is the “uncertainty” factor that was touted as killing growth in 2009 or so, but failed to kill growth, going to kill growth now?
5. Does speculation regarding recessions indicate that we are already on our way, or is it proof that we had a slowdown and are on our way out?
6. What will the GOP and administration do to boost the economy as much as possible in 2020, and what will the effect be?
As a strictly outhouse economist, I’m curious to know what the real thing, namely Menzie and the others who comment here, have to say about these things. Your crystal balls may be at least clear lexan. My crystal ball is cloudy cheap plastic at best.
Willie:
Q1 In late-stage expansion the presumption must be that there is no pent-up demand. Thus any fiscal stimulus requiring debt which will not productively pay for itself steals from the future. As well, if the fiscal stimulus is sourced from monetary policy, and this ultimately causes monetary policy to add liquidity beyond the optimal amount, this too steals from the future.
Q2 By and large, the answer to this is subsumed in the answer to Q1. One way to better understand the impact on future growth is to be aware of the credit impulse, the second derivative of the level of credit. The source data can be found in the Fed’s quarterly Z.1 release, d3.cvs from the Excel download thereof. Both private sector total credit and public and private sector total credit should be looked at in level, year-over-year change in the level, and credit impulse which is the year over year change in the change in the level. Further, these must be looked at as ratios to nominal GDP.
Q3 This is an excellent question. I would prefer to use a different metaphor. You’ve got to crack eggs if you wish to make an omelet. Now the answer here can go one of two ways. It depends. What it depends on is whether or not when all the dust has settled the US trade deficit gets lowered. Which pretty much translates into reducing the negative net export component of GDP.
Q4 My work around the uncertainty metric of Bloom et al is that it has little statistical significance with the movement of any of the economic aggregates. Menzie will have a different reading on this.
Q5 Speculation about recession is evidence that recession is more possible than had been thought before there was any such speculation. It is helpful to think of all forecasters, analysts, and pundits making up a universe. In this universe, there will be a distribution of recession views. Someone is going to see first. Someone second. And so on. So the probability of recession in the minds of the forecasting universe will rise as the economic data come out weak. Here are the average probabilities according to the WSJ consensus by month: 15,15,16,18,18,18,18,20,22,25,25,25,26. The final number being April. Hence there is no evidence per the views of experts that this was just a slowdown, and growth is going back to norm in Q2 and beyond. I would add my own view to this, which is that Q2 will be something of a dead cat bounce from the Q1 lull. And that growth will trend lower and lower thereafter.
Q6 Another truly excellent question. What readers and posters on this site do not understand is that a storm is about to break, the likes of which have never been seen in this country. Trump is going to out high level members of the deep state, who will then appear before federal grand juries and military tribunals in Guantanamo. The hermetically sealed minds of so many on this site can by that very fact not conceive of this. There are four conditions that needed to be met before this happens. One was fulfilled when Mueller presented his final report to the Attorney General. Another was Trump assuring that the US Senate remained in Republican hands – for the reason that it is the Senate that confirms top appointees. A third was being assured of conservative leanings in the Supreme Court. When RBG dies, the court will in short order go from 5-4 to 6-3 in Trump’s favor. I know precisely the fourth condition, but will not say what it is on this site. It is the fourth condition that will drop the green flag. Any meaningful answer to this question as you present it must take cognizance of the storm that will break before calendar 2020. How that storm will affect the economy in 2020 is tremendously hard to predict.
Final point. There will be a recession in 2020. Growth of real GDP in this four-year term may will fall below growth of the prior 8 years. (This is the key criterion based on work going all the way back to Abe Lincoln. Trump also lost an important key by not getting 51% or more of the popular vote in the last election. This is a generalized answer to your question in the form of Trump is by no means a shoo-in for a second term. The wild card – and this is the big one – is what happens when the aforementioned storm breaks.
Your crystal ball may be cloudy, Willie. But this set of questions is far above the norm. If others would raise questions as germane and as sensible, this website would get a big boost in terms of relevance and readership. My opinion, of course.
The “breaking storm” which requires you seal your lips on this site? Why start now? If you have such PRECISE knowledge, what’s stopping you? You’re already on board with predicting those 298, 001 indictments that will shake western civilization to its core.
The real danger posed by a “breaking storm” is the one sure to break. In your head.
noneconomist JBH can’t say because the Russian oligarchs will put a hit on him if he reveals the Putin/Trump plan to sell out Amerika. The first trumpet horn will usher in the coming apocalypse when RT and FoxNoise merge. Then the National Art Gallery will feature Crony Capitalist Realism art, with images of bold and happy rentiers showing the way to a glorious future, all under the watchful eye of Dear Leader Donald, flanked by Princess Ivanka. Komrade Donald will declare that all art must be philistine, gaudy and gold plated. Women who aren’t at least a 7 will be sent to the Trump Plastic Surgery Clinic. It will be the Gotterdammerung of the Liberal Elites.
2Slugs,
Wagner will be popular again……… “Flight of the Valkyrie” and if you think Elmer Fudd, off to the Gulag!
Willie,
Being an experience knuckledragger…. I am impressed.
Hahahaha!!!! I nearly always enjoy the tenor of your comments. And they usually happen to be spot on as well. I think maybe JBH watched too many Glen Beck blackboard and chalk expositions. All the chalk drawn arrows lead to Kookytown.
He discovered his toothpaste contained flouride, and he’s been on a downward spiral ever since.
Before the last three recessions, GDP growth was clearly trending down on an annual basis. https://fred.stlouisfed.org/series/A191RL1Q225SBEA#0
Now, GDP growth has been steady for the past 6 years, while wages, median weekly earnings and employment have all been growing.
Federal budget deficit is expanding and investment is growing. https://fred.stlouisfed.org/series/GPDI
Unless the trade deficit expands significantly, what would cause a recession?
Menzie: Here’s a statistical question. How possible is it for 60 respondents to a survey to have an average probability of recession of 26% (over the 12 months from survey date I presume), and yet for this pie chart to be right?
JBH: Inspecting actual data, one sees US net exports increased as a share of US GDP for the first year of the last recession…
Observe world: Willie articulates a very well thought out set of questions about the economy — on this site devoted to the economy. Which the socialist vast majority of commenters here proceed to ignore. And instead maliciously attack president Donald Trump and his daughter! All the while Western Civilization is burning down on an island in the Seine. And once pristine Sweden has become the rape capital of Europe. While the commenters here with their multicultural BS are aiding and abetting it whether they know it or not.
JBH Willie’s questions were fine and have been discussed in other threads. As to the fire on the Seine, I don’t quite see how that is related to economic issues or the collapse of Western Civilization. The only connection I see between Trump and the Notre Dame fire is Trump’s laughably ridiculous comment about flying tankers over the fire. So not only does he think he’s a financial wizard and a military genius, now he wants to play Fire Chief Trump. As to rapes in Sweden, Stockholm should be thankful that President Trump hasn’t visited Sweden, thereby contributing to additional sexual assaults on women.
You get the feeling he’s waiting for “a communist “ to set a fire in the Capitol so that Trump can issue an executive order barring all 231 communists from taking their elected spots in the House and the 47 communists from doing the same in the Senate? Hoping history repeats itself?