Today’s U-T has another miss-the-mark assessment from the economists at the UCLA Anderson Forecast.
Copied from Ben’s blog
“The LA Times reports from California. “Despite the housing downturn, the California and U.S. economies are headed for a ’soft landing’ because trouble in one sector alone is not enough to trigger a recession, UCLA economists said in a quarterly forecast to be released today.”
“A national recession is also unlikely, UCLA Anderson Forecast director Edward Leamer said. ‘If you are a builder or a broker, it will feel like a deep depression,’ he said. ‘But the rest of us will hardly notice.’”
“Many models say that a recession in the next 12 months is a virtual certainty,” though Leamer’s Anderson Forecast report, ‘Models or Minds?’ states that ‘this time, unlike every other time, the problems in housing will stay in housing.’”
Their errors:
1) They say we need a downturn in 2 sectors to have a recession, so housing alone won’t do it. Let’s see guys: what about cars and manufacturing?
2) They ignore exotic lending and the credit bubble
3) No housing problem has ever stayed in housing. In the contrary, housing downturns lead to recession (exceptions were the stimulative effect of Korean and Vietname Wars, but the Iraq war is not stimulating but making our debt even worse).
One thing they did peg correctly: the CA government budgets are going to be in a world of hurt, as sales and property tax income decline.
I can’t for the life of me understand why they insist on wearing these blinders. Is there a conflict of interest somewhere, a sponsor issue?
Roubini has got it right. He says we are already in a housing, auto, and manufacturing recession.
Furthermore, recession are a lagging indicator. By the time a recession is noted by the academics, the damage has already been done.
From Joseph Ellis:
“”Perhaps the single most important insight in economically getting “Ahead of the Curve” is that of recognizing the lagging characteristic, even deceptiveness, of “recession” as a measure of economic downturn. Businesses suffer loss of sales, inventory buildup, and slowing-to-declining corporate profits when the rate of growth in economic activity (real GDP, measured here on a year-over-year percent change basis to provide clarity) begins to slow from its peak.
Note that bear markets (shown here in the vertical yellow shaded bars [link below]) almost always begin when the rate of growth in real GDP is at or still close to its peak (see arrows), and continue as the rate of growth continues to slow.* By the time Real GDP is approaching “zero” growth or an actual decline (“recession”), most of the economic damage has been done, it is far too late for businesses to adjust, and the bear market is largely over.
Recessions are denoted here by the black boxes at the bottom of the chart. Note how belated they are as a measure of economic harm. Even forecasting a recession by six months is of only modest value. And the reality is that the onset of recession is usually debated by economists well after the recession has actually begun. Thus, those who speak of forecasting recessions are, in fact, focusing on predicting a lagging indicator that has little or no pragmatic use in avoiding the effects of an economic slowdown.
Businesses and investors must instead focus on leading indicators of rates of economic growth, particularly drivers of consumer spending, which represents the front end of the economic cycle.” See chart
I think the UCLA Anderson group is going to lose its fame by next spring, when the recession is official. They really stuck their necks out saying there is no way possible we will have a recession. Just like in March 2001, when the recession had already started and 95% of economists surveyed by Bloomberg said we would not have a recession at all.
It’s a wonder people even listen to what economists have to say, since only 5% can even recognize a recession when they are in it.
And remember, recessions are a LAGGING indicator, so by March 2001, the business downturn had already occured for many months. But 95% of economists were, forgive my bluntness, too damn stupid to see the recession they were already IN.
I agree that the UCLA forecast was overoptimistic and missed the point of additional sectors beyond housing already slowing. Sounds to me like they wrote their report 3-6 months ago.
We are definitely in an economic slowdown as confirmed by the GDP, Manufacturing, housing numbers. However, the service sector and corporate profits are still buzzing along, albeit at a slower pace.
I think all can agree that we are in a slowdown. The degree of the eventual bottom of that slowdown is what’s in question. However, I don;t believe that we are in a recession currently. (But can’t prove it either … until Q4 numbers come out)
There are slowdowns that are not classified as recessions that are both painful and necessary and almost as effective as recession to restore health and order to the economy.
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