Ben Casselman writes about the economy in the New York Times today:
After five years of uncertainty and turmoil, the U.S. economy is ending 2024 in arguably its most stable condition since the start of the coronavirus pandemic. Inflation has cooled. Unemployment is low. The Federal Reserve is cutting interest rates. The recession that many forecasters once warned was inevitable hasn’t materialized.
I'm not picking on anyone in particular here, but this narrative is just way too popular. We have no idea if the economy is stable right now. It's cooled down since its peak, but that means nothing. It could either stabilize or continue cooling, and no one knows which it will do.
In order to see what I mean, here's a look at real GDP growth, the most common measure of overall economic healthiness. The gray bars show recessions. I've added the red bars to highlight growth a few months before each one:
Almost all of the pre-recession growth trends look pretty stable. They predicted nothing. Now here's a different look:
The green bars show various declines in growth that lasted a year or so. None of them predicted an imminent recession.
We just don't know. Current growth is down a little bit but not a lot. It literally tells us nothing about where we are in the economic cycle.
On the other hand, there are some historically reliable recession predictors that are flashing red—or at least pink:
- Job growth has slowed almost to zero over the past year.
- Unemployment is up and has triggered the Sahm Rule.
- The yield curve just recently reverted from negative to positive.
- Nominal interest rates remain high.
- New manufacturing orders have been steadily declining.
- New housing starts and sales are both sluggish.
- The stock market is way overvalued—though admittedly this has no predictive history. It just worries me.
Not everything is bad. Consumer spending remains steady; oil prices are contained; and fixed investment is still growing. Bottom line: I don't know anything more than anyone else, but it's worth at least acknowledging both the good and the bad.
We do know one thing with absolute certainty. If there is a recession, it will be Trump's recession. A Trumpcession, as it were.
If we’re going to have a recession, I hope it holds off for a good while, because it will be politically more damaging if it arrives closer to 2028.
We can always split the difference and hope for a light depression for 2025-2028.
I don't hope for a depression because I don't want to see needless suffering. That said, at some point the economy is going to stop expanding (ie a recession) for a while—it always does—so if it's going to happen, it's rational (if one is a Democrat) to hope it arrives at a time maximally inconvenient for the MAGA political project.
I assume we'll get a lot of takes like this one until a recession is well underway. The default view is always that Republican presidents are good for the economy, so that's the lens through which everything will be viewed.
Alternate view. Now that the election is over and Trump has won, it is important to be positive. That is why the news stopped talking about inflation.
(see also https://jabberwocking.com/another-look-at-inflation-and-fox-news/)
Citing the Sahm Rule suggests to me that you don't actually read Claudia Sahm.
Is there a Birdsite Rule that indicates that when a person has more followers on an alternative social media account than on Birdsite, it's an indication that it's time to quit the Birdsite?
Kevin's take is fairly consistent with Sahm's overall take on both the economy and the significance of the Sahm indicator.
It's predictive, but not a forecast nor a law of nature. It can be a warning sign, but it's only one piece of data.
As she said, the rule is meant to be broken. So, I can't imagine it's predictive; it's indicative.
Ok. We are all saying exactly the same thing. Shrug
Recessions aren’t predictable, unless you can predict black swan events:
2020: Covid
Great Recession: Irrational exuberance in global housing market
Dot-Com Bust: Irrational exuberance in tech stocks
Early 1990s: Fed fucking around plus an oil shock
1981/2: Fed fucking around plus an oil shock
1980: Fed fucking around
1973–5: Oil shock
1969–70: Fed fucking around plus military drawdown after Vietnam
1960–1: Fed fucking around
1958: Fed fucking around plus federal budget surplus
1953: Fed fucking around plus military drawdown after Korea
You can’t predict the ends of wars, oil shocks, or plagues. Irrational exuberance is only irrational in hindsight. And you never know when the Fed is going to decide the working class has it too good. Any attempt to predict a recession is voodoo.
People love to say that recessions are not inevitable, and I guess that’s true, strictly speaking. But the reality is expansions don’t last forever. They always end. Always. Since World War II the average expansion.has lasted around 60 months, I think. And the average of the last four has been around 80 months. The post war record (Obama-Trump) was 128 months by my count. So, yeah, a recession is headed our way. Only question is when it arrives.
I guess there was a little recession in 1969-1970. I didn't notice it at the time, but I was only about 13. Still, I think it was pretty mild.
Saying that we were withdrawing from Vietnam during those years doesn't sound right. About 30% of US combat deaths during that conflict happened during those two years.
Perhaps that recession resulted from Federal fiscal restraint that resulted in a rare budget surplus in 1969.
No worries! Add the inevitable 1% tax cut, tariffs and expense of mass deportations, hey maybe a wall too . . .
What could possibly go wrong
Sorry to say, but I love it when you are bored: you are a fountain of posts. Always interesting, if sometimes too much in the weeds for me. Sorry you have to be hospitalized to be so productive. Bad for you. But, hey, good for me!
Jeez Kevin. What the article got wrong is that we've already had a soft landing. All those people who thought that in order to bring inflation down we would need extended unemployment , 5,6,7 percent and more for years on end, were wrong. The people who thought this was mostly about the disruptions of the pandemic and the supply chain issues that resulted, were right. None of this means we know what will happen in the next year or two. 2025 is likely - not certainly - going to pick up where 2024 left off but my best guess is that some of the things Orange Caligula actually follows through on will have an ill efect on the economy but maybe not right away.
But as they say, predictions are very hard especially about the future but none ot this changes the fact that we did indeed have a soft landing AND Joe Biden and his administration desever some of the credit for that.
Given what's going on in the rest of the world and our soon-to-be bunch of billionaires in charge here at home, a soft anything does not seem likely for the little people any longer, let alone a soft economic landing.
I'll echo some of the other comments here: we are already landed softly. It's just that we're headed towards a cliff and somebody isn't looking while fire walling the throttle.
Damn! Everybody on Wall Street read Kevin's post and overreacted.
I believe Trump will go to great lengths to prevent a crash during his tenure. Does he have the power to do so? I’m not certain, but his ego seems deeply tied to these “scorecards,” so it’s likely he would make avoiding a crash a top priority.
Why would he be worried about a crash? He's not worried about reelection. He'll just say it's the liberal's fault, Fox will second, MAGAs will buy it, and 50+ senators will say- nothing. So which way? The answer is whichever way will put the most $$ directly in his pockets?
Delete all files of FactCheck, Science, Statistics, Environment and Equality.
Click- "Whatever you say sir. May I kiss the ring"
Click - "Continue"
Welcome to Trump 2.0
If Trump was worried about a recession, he wouldn't be talking about putting back breaking tariffs on effectively all imports. THAT, if he carries through, will not cause a recession, it will cause a depression to make the 30s look mild.
Exactly. He has no more understanding of how economies work than does an earthworm. He wouldn’t care unless it affected him personally, and then he would do all the wrong things to try to fix it.
Trump's stated goal of increasing prices in the US to punish the foreigners is going to run head on into a Fed that will want to avoid having 2 inflation surges under its belt.
The media will do their best to keep Americans as confused and uninformed as possible. Likely we can blame the eventual inflation and/or recession on a Democrat to named later.
My life observation is that when stupid, amoral people are in charge, bad things happen. I expect a recession, if not worse.