Wednesday, May 07, 2008

Feldstein Recession update, again

source: Bloomberg


sbvor said...

1) Compare Feldstein’s allegations against the actual data. See the charts in the following link. Pay special attention to Feldstein’s allegations regarding “Industrial Production”. According to the St. Louis Fed, he’s dead wrong! Near the bottom of the post, I provide a link whereby you can recreate each chart for yourself.

The Recession of 2008 That Wasn’t?

2) Feldstein has revised his earlier inaccuracies. In other words, he has already admitted he was wrong.

By contrast, the paycheck of every economist at The Conference Board has, for “over 90 years”, depended upon the accuracy of their economic forecasts. The Conference Board predicted 0.4% growth in Q1 and the advance number came in at 0.6% growth. In other words, The Conference Board was extremely accurate in their (excessively pessimistic) forecast.

Feldstein does head the 7 person dating committee of the NBER. And, Feldstein is a professor of economics at Harvard. Feldstein is very well qualified to look in the rear view mirror and call the beginning and the end of a recession. But, Feldstein represents a mere 14% of the vote on the 7 person committee. And, I have absolutely no doubt as to why Feldstein is the only member of that committee which the media are interested in interviewing. I interpret that to mean the committee may, at worst, vote 86% to 14% (6 to 1) against calling a recession in 2008.

If the remainder of the 2008 forecast from The Conference Board proves accurate, GDP will grow in each quarter and we will not see a recession at any point in 2008 (because it would be utterly unprecedented to call a recession without even one quarter of negative GDP growth).

Furthermore, as I stated in my blog:

“Many in the media have noted that the recession of 2001 (03/01 to 11/01) was the only recession ever which did not witness at least two consecutive quarters of negative GDP growth.

However, the media have been less forthcoming in noting that leading up to and through the recession of 2001, three out of five quarters produced negative GDP growth. More importantly, the first three quarters of 2001 produced a net negative GDP growth of -0.7%.”

sbvor said...

Sorry, the 3rd link in my previous comment has been deleted (although Google cache still has it).

The same story (Feldstein's "earlier inaccuracies") can be found here

sbvor said...

Okay, retraction time.

After listening a second time, I find that Feldstein's carefully couched comment on Industrial Production was not inaccurate. But, I would submit that, based on this chart, his comment was misleading.

On balance, I find Feldstein’s commentary reasonable.

But, I still place my confidence in the forecast from The Conference Board.

Paul Deng said...

Thank you for the comments. My hunch is that the current 0.6% GDP growth will be revised down later, so we probabaly already had a negative growth in real GDP. Other indicators like y-o-y change of unemployment rate change also clearly indicate a recession scenario.

sbvor said...


I propose a three pronged gentleman’s bet:

1) The final GDP figure for Q1 will remain positive (I’m betting between 0.4% and 0.6%). We’ll know on June 26th.

2) The NBER never declares a recession to have taken place at any point in 2008.

3) The economic forecast from The Conference Board proves to be accurate within plus or minus 0.3% for each remaining quarter of 2008.

Note: As of today, 5/20/08, the predictions are:
Q2: +0.4%
Q3: +1.4%
Q4: +1.5%

(Meaning, no recession in 2008.)