{"id":167743,"date":"2023-10-30T11:19:15","date_gmt":"2023-10-30T08:19:18","guid":{"rendered":"http:\/\/kupitiblog.store\/576r\/beware-the-no-recession-call-economic-data-lags-reality\/"},"modified":"2023-10-30T11:19:15","modified_gmt":"2023-10-30T08:19:18","slug":"beware-the-no-recession-call-economic-data-lags-reality","status":"publish","type":"post","link":"https:\/\/kupitiblog.store\/576r\/beware-the-no-recession-call-economic-data-lags-reality\/","title":{"rendered":"Beware the ‘No Recession’ Call: Economic Data Lags Reality"},"content":{"rendered":"

 <\/p>\n

Economists no longer expect a recession. Such was according to a recent WSJ survey of Wall Street economists. To wit:<\/p>\n

\n

\u201cWSJ-Recession Forecasts<\/span><\/p>\n<\/blockquote>\n

The Federal Reserve also suggests the same. Following the September FOMC meeting, the <\/strong> and upgraded its economic forecast to include a scenario.Economic Forecasts<\/span><\/p>\n

\n<\/blockquote>\n

The problem with that optimism is that it is entirely based on lagging economic data.<\/p>\n

More importantly, that lagging data is subject to relatively large negative revisions in the future.<\/p>\n

Furthermore, as discussed previously, tighter monetary policy\u2019s \u201clag effect\u201d is still working through the system. As Michael Lebowitz noted:<\/p>\n

\n

\u201cFed Funds and The Lag Effect<\/span><\/p>\n<\/blockquote>\n

In other words, if the average delay<\/strong> between the final rate increase and recession is 11 months, and the last hike was in July 2023, the risk to forward expectations is quite elevated.<\/strong><\/p>\n

Such is why the Fed and economists are always a day late and a dollar<\/span> short.<\/p>\n

A Day Late And A Dollar Short<\/strong><\/h2>\n

Given the dependence on economic data subject to significant revisions, it is unsurprising that the Fed and economists are often incorrect in their prognostications. As we noted earlier:\u00a0<\/p>\n

\n<\/p>\n

Fed GDP Projection<\/span><\/p>\n<\/blockquote>\n

Of course, economists are not much better. Let\u2019s revisit the WSJ survey of Wall Street economists from above.<\/p>\n

However, this time, we will note the dates that the National Bureau Of Economic Research (NBER) dated the beginning and end of the last two recessions. <\/p>\n

WSJ Recession Probability vs NBER-Dating<\/span><\/p>\n

While this sample size is relatively small, it does reinforce the point that economists are generally wrong about a scenario.<\/p>\n

The problem with assessing the state of the economy today<\/strong> based on current data points is that these numbers are only \u201c<\/strong><\/p>\n

Economic data is subject to substantive negative revisions as data gets collected and adjusted over the forthcoming 12- and 36-months.<\/p>\n

Consider for a minute that in January 2008, Chairman Bernanke stated:<\/p>\n

\n<\/blockquote>\n

In hindsight, in December 2008, the NBER dated the start of the official recession in December 2007.<\/p>\n

If Ben Bernanke didn\u2019t know a recession was underway, how would we?<\/p>\n

Let\u2019s take a look at the data below of real economic growth rates:<\/p>\n

NBER GDP Peak vs Recession<\/span><\/p>\n

Each of the dates above shows the economy\u2019s growth rate immediately before the onset of a recession. <\/strong><\/p>\n

You will note in the table above that in 7 of the last ten recessions, real GDP<\/span> growth was running at 2% or above. In other words, according to the media, there was NO indication of a recession.<\/strong><\/p>\n

But the next month, one began.<\/p>\n

The chart below shows the S&P 500<\/span> with two dots. The blue dots are when the recession started.<\/p>\n

The yellow triangle is when the NBER dated the start of the recession. In 9 of 10 instances, the S&P 500 peaked and turned lower before the recognition of a recession. <\/strong><\/p>\n

NBER w\/Recession Dating vs Market Realization<\/span><\/p>\n

Do you see the problem of the call by economists?<\/p>\n

Waiting On The Data<\/strong><\/h2>\n

While the WSJ economists are seemingly confident in their expectation of \u201c the economic data hasn\u2019t caught up with economic realities.<\/strong> The table below shows the date of the market peak and real GDP versus the start of the recession and GDP growth at that time.<\/p>\n

Recession And NBER Dating Table<\/span><\/p>\n<\/p>\n

For example:<\/p>\n