Market Talk

I’m not the only one who thinks the economy’s worse off than conventional wisdom says. In his weekly commentary, John Hussman digs through the public database of the NBER, and concludes the economy is still struggling, and with stimulus fading, there’s very little to keep the recovery alive.

Given the data in hand, it’s clear that past growth downturns of the same extent have often gone on to become recessions. However, there are a few exceptions where these growth rates dipped below zero and then recovered. If we had good reason to expect positive economic tailwinds, we would be less concerned about the present deterioration. Unfortunately, my impression is that the bulk of the growth that we did observe coming off of the June 2009 economic low was driven by a burst of stimulus spending coupled with a variety of programs to pull economic activity forward. My concern is that these synthetic factors are now trailing off, with little intrinsic economic activity to carry a recovery forward.

Suffice it to say that we’re not yet out of the woods.

You think that’s why the Fed’s laying the ground work for QE2? They’re not dumb; they know the economy’s still on fragile, far more fragile then they’re letting on, and there’s no political will for more stimulus spending. You can bemoan the national debt, you can rail against “socialists” in the White House, but don’t for a second think this recovery has been anything organic.

It’s all been government juiced, whether it be Congress, the White House, the Fed, or Congress leaning on the FASB to suspend mark-to-market accounting rules. Now, the NBER doesn’t differentiate between public spending and private spending; to them, growth is growth. But the Fed knows better. The Fed knows this economy can’t stand on its own yet. The Fed knows what the man on the street knows: the economy stinks.

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I meant to get to this over the weekend, but all kinds of domestic bliss issues got in the way. But it’s still relevant today, and maybe even more so now that the NBER’s declared the recession over.

Let’s accept at face value that the “recession,” the narrowly defined slide in economic activity that began in December 2007, ended in June 2009. It’s important to keep in mind this definition refers only to the slide in economic activity. Anybody who lives in the real world knows the economy remains even today in a very weakened state, maybe not technically a recession but certainly not anything even faintly resembling salad days, and that important spark that sets the economic cycle going again has yet to show up.

The recession’s end means absolutely nothing to the 15 million unemployed Americans, and is cold comfort to the millions more who are underemployed, working only part-time. It’ll elicit only a Bronx cheer from the millions more who haven’t seen a raise in two years, or have had their salaries cut, or their benefits cut, and have watched the value of their homes slide, for many below what they paid for it. It won’t mean much to the people who have seen their property taxes rise, or have to shoulder more costs for their childrens’ schooling, things that used to be covered by their (rising) property taxes.

I don’t know about you, but I know people who are still losing their jobs. I learned of another one just the other day. There are still a lot of empty storefronts where I live. There’s one shopping center by me, that I can’t remember ever having empty stores. Now it’s got gaping holes where big stores used to be, Mandee’s, Blockbuster. Unlike in the past, nothing new is coming in. The movie theater there just closed down. This is a theater that’s been around as long as I can remember. I saw “Star Wars” there (and I don’t mean those lousy prequels, I’m talking 1977-vintage, Han-shot-first version.) Now the marquee just says “thank you for your patronage.”

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- The recession getting an official ending isn’t a surprise, but it doesn’t change the fact that to the average Joe, it doesn’t feel like the recession’s over. “Obviously, the employment picture is still dismal, and people complaining that policymakers should focus on labor markets rather than output have a point,” Ryan Avent says. “It’s just not one that’s particularly relevant to what the NBER Dating Committee does.”

- – NBER says recession’s over, but it’s not clear employment has bottomed out yet. “That is my worry about this call,” writes Mark Thoma. “Whether or not we stay near the trough for an extended period or move gradually but consistently back to full employment is an open question, but I don’t think we can discount the stagnation outcome.”

- Many strategists have been cautiously optimistic about the September rally because it has come on low volume, but Reformed Broker blogger Josh Brown says he actually prefers a low-volume breakout. “Nobody is in,” he says. “Fear is the conductor of this train right now, period, end of story…Fear of missing out is exactly why a stealth rally in stocks with low participation would be more meaningful and bullish than almost any other scenario.”

- Expect an interesting week ahead, says PIMCO CEO Mohamed El-Erian, as Europe’s debt crisis returns to spotlight amid increasing solvency concerns. And global configuration of currencies is quickly becoming hot-button issue. “This week will shed light on whether policymakers can do anything to deal with these two issues,” he says. If they continue to stumble and hesitate, what has been simmering may well come to a full boil in the next few months.”

- Calculated Risk blogger Bill McBride doesn’t expect any major changes to tomorrow’s FOMC statement. Too soon for Bernanke to comment on further easing, especially considering his Jackson Hole speech. “Bernanke suggested that additional easing would probably require ‘significant weakening of the outlook’ or a meaningful decline in inflation expectations (or further disinflation),” he notes. “The first hasn’t happened yet…although they might express more concern about disinflation this week.”

- Paul Krugman provides more evidence that unemployment remains high because aggregate demand is too low. “Every single major industry has seen a rise in involuntary part-time work; so has every major occupation,” he says at Conscience of a Liberal. “There’s no hint that any major kind of labor, in any sector, is in short supply.”

- Weak demand remains most important factor holding back job growth. But it’s not the only factor, James Hamilton argues at Econbrowser. He points to latest NFIB data which show respondents say sales are their biggest problem, but they’re increasingly worried about taxes as well as government regulations.

- S&P 500′s double-digit percentage rally off July lows has been broad based, lacking a particularly strong sector during run-up, Bill Luby writes at VIX and More blog. Materials and industrials have been top performers, while consumer discretionary and tech have recently shown signs of life. “Consumer and financial sectors cannot afford to be a significant drag on stocks or the current rally will likely run out of steam.”

- Google (GOOG) CEO Eric Schmidt recently said he wants to add social networking to the company’s core products and services. “When I read those remarks, an alarm bell went off in my head,” Mathew Ingram writes at GigaOm. “To truly be successful, social media or social networking…can’t just be bolted onto what you are already doing. It’s not a software upgrade or a hardware fix…social just isn’t something the company understands very well.”

- Here’s a perfect example of an inspiring hypomanic entreprenuer: “I had friends at Princeton; I’m sure it’d be fun to see them,” says 21-year-old Seth Priebatsch. “But I know that what I’m going after is huge and others are going after it, and if they’re not, they’re making a mistake. But other people will figure it out, and every minute that I’m not working on it is a minute when they’re making progress and I’m not. And that is just not O.K.”

US stocks rally sharply, after the NBER officially calls the recession over, and the S&P 500 vaults over a key technical threshold.

DJIA jumps 146 (1.4%) to 10754, its highest close since May 13. S&P 500 rises 17 (1.5%) to 1143, finally breaking over the 1130 level. Nasdaq Comp surges 40 (1.7%) to 2356. NYSE volume continues to be low. But the stock rally doesn’t take away from Treasurys, which manage to rise as well, with the 10-year yield falling to 2.70%. Gold also rises, hitting a nominal new closing high of $1,279.

NBER surprises with its call that the recession ended in June 2009; still, it’s the longest recession of the post-War period, and by no means does it mean the nation’s problems are over. Street likes Lennar profit, but home-builder sentiment remains deeply in the doldrums.

Go ahead, have a drink. Lift a glass. Stand your neighbor a pint. The recession’s over.

The NBER, the official arbiter of the start and end of recessions, announced today that they’ve called the trough in the economy hit in June 2009, 18 months after the recession ended in December 2007. That means the economy has been expanding for the past 14 months. How’s that grab you?

From the NBER:

The committee waited to make its decision until revisions in the National Income and Product Accounts, released on July 30 and August 27, 2010, clarified the 2009 time path of the two broadest measures of economic activity, real Gross Domestic Product (real GDP) and real Gross Domestic Income (real GDI). The committee noted that in the most recent data, for the second quarter of 2010, the average of real GDP and real GDI was 3.1 percent above its low in the second quarter of 2009 but remained 1.3 percent below the previous peak which was reached in the fourth quarter of 2007.

You want to hear a President tout the success of his policies? Tune into Obama’s town hall meeting at noon today. I’m pretty certain he’s going to be all over this. ‘Course, this announcement did not create a single job, and it will be cold comfort to the 15 million unemployed Americans, and the million more who are underemployed, and the millions more who are underpaid.

Note, too, the NBER makes no distinction between government-induced economic growth, and plain old economic growth. Whether you agree with what Uncle Sam has done, what this essentially means is the government pulled the nation out of the recession. Wall Street bulls will crow about it, and the Larry Kudlow’s of the world will pretend the government only got in the way. But there really can’t be any other conclusion.

The problem with that, of course, is that nobody’s ready to step in once the government steps out, which is what the right wingers are going to be calling for even more loudly now (see, everybody gets to use this to their own best advantage.)

Double dip. The infamous Seinfeld phrase has taken on a whole new meaning when discussing the economy’s latest prospects.

The latest stock-market swoon has folks concerned that the recovering economy may now be “double-dipping” back into recession. It’s still too early to tell whether this is the case, but recent economic data point to the economy expanding at a much slower rate than previously anticipated.

Of course, a “double dip” may not be possible, considering the Great Recession still hasn’t officially come to an end, at least according to the National Bureau of Economic Research. Robert Hall, chairman of NBER’s economic dating cycle committee, sheds some light on declaring double dips, in an interview with the AP.

In Hall’s view, a double dip is akin to a continuous recession that’s punctuated by a period of growth, then followed by a further decline in the economy.

The NBER doesn’t define a double dip any more specifically than that, says Hall, an economics professor at Stanford University.

In econo-speak, Hall explains: “The idea — hypothetical because it has yet to happen — is that activity might rise for a period, but not far enough to complete a cycle, then fall again, and finally rise above its original level, only then completing the cycle.”

But that hasn’t stopped bloggers and economists from weighing in on the double-dip debate.

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The big talk these days is over the double-dip, the question of whether or not the economy will slip back into recession. The bulls say no, the bears say maybe, the pragmatists say it doesn’t matter because the economy stinks regardless. The markets are talking about it, the Fed is thinking about it, Spain’s problems are threatening to make it come true.

Look, if the recovery builds steam, as most people still believe, then the economy will grow, jobs will be created, and the government’s efforts will have paid off, no matter the cost and there won’t be any double-dip. If the recovery falters, if the jobs markets stagnates, if wages stagnate, if the government is so squeezed from its last go-round with bailouts and stimulus that it’s unable to blow mind-numbing amounts of money on boosting spending, well, there still won’t be a double-dip. Why?

Because it’ll be a sign the economy never actually came out of the first dip.

The signs are growing that the real economy is hitting a plateau, if not rolling over, as the various and massive government interventions into the private market fade (except for ultra-low interest rates; the Fed’s nowhere near raising them.) What’s pushed the recovery along this past year has has been government intervention, massive stimulus spending, massive inducements to consumer spending, massive monetary easing. It’s all been temporary, however, and as various programs dissipate, the real economy is left to do the heavy lifting. There are indications it isn’t up to that job.

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We say this is still a recession

Yesterday’s statement from the NBER Business Cycle Dating Committee seemed a bit odd.

The committee usually releases a statement when it has something substantial to say about the economy. But saying it was maintaining the status quo on its recession call and holding off on declaring the downturn over seemed strange.

But Jeff Frankel, Harvard economist and a committee member, sheds some light on the reasoning behind the statement.

“The press was bound to find out that there had been an in-person meeting (as it did), and so the confusion created by issuing the statement was probably less than the confusion that would have been created by remaining mysteriously silent,” Frankel writes on his blog.

So there you have it. The committee thought ahead about the repercussions of its meeting getting leaked and appeared to act in a transparent manner.

That hasn’t stopped Frankel, himself, as well as Robert Gordon of Northwestern University from stepping forward and claiming the recession is already over.

But what seems to be getting lost in translation is this debate doesn’t really impact investors. Sure, officially calling the recession’s end sounds good from a psychological standpoint, but it’s not likely to impact policy decisions.

“The NBER is attempting to identify peaks and troughs in the economic cycle for research purposes,” Jeffrey Miller, CEO of NewArc Investments, writes at A Dash of Insight. “The NBER has a research mission, not a policy mission.”

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On the same day the NBER Business Dating Committee Cycle announced it’s still too soon to declare the recession over, yet another dissenter from the committee comes forward.

This time, Robert Gordon of Northwestern University and a member of the committee says he “strongly disagrees” with the committee’s decision.

“It is obvious that the recession is over,” he says, noting he believes it ended in the second quarter of 2009.

“The American economy is enjoying strong upward momentum that is evident every day in the announcements of retail sales, service sector production, and almost everything else,” he adds. “There are no negatives in the actual data, but rather the negatives reside in doomsayer worries that consumers are too weak to spend or that the economy will collapse after the Obama stimulus dollars have been spent.”

He also finds the prospects for the economy double-dipping back into recession “extremely implausible.”

Gordon’s dissent comes one week after Harvard economist and fellow committee member Jeffrey Frankel said the recession was over. Frankel based his opinion off the labor market, which was showing signs of life last July before finally experiencing job growth last month.

It seems reasonable, of course, to assume other committee members aren’t so convinced.

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The recession isn’t actually over, although it may be, and Greece’s problems are over, although they actually may not be. Confused? No need to be, just give us three minutes to explain.