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Sunday, December 16, 2007

NY Times: Are We in a Recession?

by Calculated Risk on 12/16/2007 12:02:00 PM

It is always difficult to tell - in real time - if the economy has slipped into a recession. Dr. Jim Hamilton at Econbrowser (and extended by Chauvet - see below) has developed a model that seems to do a pretty good job. From Chauvet:

"According to the model, the probability that the American economy was in a recession in October, the last month for which we have data, was only 16.5 percent. This is high enough to make us nervous about the future, but it is low enough that we can be fairly sure that if a recession is going to be visible in the data, it did not begin until November at the earliest."
The next few months will be an interesting test of the Hamilton / Chauvet models.

Here are six views on the recession question from the NY Times:

You Can Almost Hear It Pop, by Stephen S. Roach

The Facts Say No, by Marcelle Chauvet and Kevin Hassett

Bet the House on It, by Laura Tyson

Not if Exports Save Us, by Jason Furman

Nobody Knows, by James Grant

Wait Till Next Year, by Martin Feldstein
"My judgment is that when we look back at December with the data released in 2008 we will conclude that the economy is not in recession now.

There is no doubt, however, that the economy is slowing. There is a substantial risk of a recession in 2008."
Feldstein's view is especially important since he is the current President of the National Bureau of Economic Research (NBER) the organization that calls recession in the U.S..

And for fun, here are some Greenspan quotes from the '90/'91 recession: (bear in mind that the recession started in July, 1990):

“In the very near term there’s little evidence that I can see to suggest the economy is tilting over [into recession].” Greenspan, July 1990
“...those who argue that we are already in a recession I think are reasonably certain to be wrong.” Greenspan, August 1990
“... the economy has not yet slipped into recession.” Greenspan, October 1990
Source (pdf): "Booms, Busts, and the Role of the Federal Reserve" by Dr. David Altig.