No Quick Fix: Roubini Forecasts Worsening Economy, 2-Year Recession

[one...two...tree 2,762]

The dramatic meltdown of the financial markets has shifted focus from the real economy, which our guest, RGE Monitor chairman Nouriel Roubini, says is where the downturn is truly being felt. The $700 billion bailout and today's global rate cuts may have helped avert a complete financial collapse, the NYU Stern School economist notes. But the recession -- which he says began in Q1 of this year -- is deepening and will last into early 2010.

Retail and personal spending fell sharply over the summer, marking a drop in consumption for the first time since 1991 -- and the Q3 numbers are only going to be worse, says Roubini. Moreover, corporate capital spending is down, which will translate into even fewer jobs in the coming months.

Is Roubini simply being too bearish? "I worry that it'll be worse than I expected," he says in the accompanying video, in which he predicts a slow, possibly L-shaped recovery a la Japan.

video here.

[mawilson 2,133]

But the recession -- which he says began in Q1 of this year -- is deepening and will last into early 2010.

Except that it didn't? #######

[one...two...tree 2,762]

But the recession -- which he says began in Q1 of this year -- is deepening and will last into early 2010.

Except that it didn't? #######

American newspapers often quote the rule of thumb that a recession occurs when real gross domestic product (GDP) growth is negative for two or more consecutive quarters. This measure fails to register several official (NBER defined) US recessions.^[2]

http://en.wikipedia.org/wiki/Recession

[mawilson 2,133]

It's not a "rule of thumb", it's a fuckin definition.

[Ban Hammer 13,352]

It's not a "rule of thumb", it's a fuckin definition.

back to the drawing board. spoilsport!

[mawilson 2,133]

It's not a "rule of thumb", it's a fuckin definition.

back to the drawing board. spoilsport!

[one...two...tree 2,762]

It's not a "rule of thumb", it's a fuckin definition.

Not really...

The risk of redefining recession: Pundits and even policy makers still cling to over-simplified definitions of recession. It's a dangerous misconception.

By Lakshman Achuthan and Anirvan Banerji, Economic Cycle Research Institute

NEW YORK (CNNMoney.com) -- Recession? Or just a slowdown? Some will tell you it doesn't much matter - that it's a distinction without a difference. Nothing could be further from the truth - or as dangerous a delusion.

Ignorance about recessions has taken hold because of a simplistic idea that a recession is two successive quarterly declines in gross domestic product (GDP), a measure of the nation's output.

The idea originated in a 1974 New York Times article by Julius Shiskin, who provided a laundry list of recession-spotting rules of thumb, including two down quarters of GDP. Over the years the rest of his rules somehow dropped away, leaving behind only "two down quarters of GDP."

Like most rules of thumb, it's far from perfect. It failed in the 2001 recession, for example. At the time and until July 2002, data showed just one down quarter of GDP, leading policy makers to claim there had been no recession. Yet, later that month, revisions showed GDP down for three straight quarters. Complicating matters further, with the benefit of time, we now know that GDP actually zigzagged between negative and positive readings, never showing two negative quarters in a row.

The far more important issue in 2001 was the loss of 2.7 million jobs - more than in any postwar recession. Even taking into account labor force growth, those job losses were greater than in most recessions over the past 50 years.

Clearly, there are times when the reality of the economy outside your window is harsher than GDP might imply.

In fact, if you insist on using a rule of thumb, you're better off "defining" recession as a period when the economy sees four straight months of job losses, since that rule has been much more accurate. However, like the GDP-based definition, even that is too narrow a rule.

Any trustworthy definition of recession needs to encompass the key elements of the recessionary vicious cycle - output, employment, income and sales.

While all government data are subject to revision, simultaneous reliance on all four of these aspects of the economy produces judgments that can stand the test of time.

To appreciate why, we must first understand what a recession really is.

A recession is a self-reinforcing downturn in economic activity, when a drop in spending leads to cutbacks in production and thus jobs, triggering a loss of income that spreads across the country and from industry to industry, hurting sales and in turn feeding back into a further drop in production - in effect a vicious cycle.

That's why the proper definition of recession cannot be limited to GDP and industrial production, but must also include jobs, income and spending, all spiraling down in concert.

To keep it simple, just look for the "Three P's" - a pronounced, pervasive and persistent downturn in the broad measures of those factors.

http://money.cnn.com/2008/05/05/news/econo...ssion/index.htm

Edited October 8, 2008 by Jabberwocky