Good News about the US economy

With all the turmoil in global financial markets, there have been positive signs about the US economy.  This morning, the ADP report indicated that the private sector added over 200,000 jobs.  Though the ADP report has not been a reliable predictor of the official employment report, it still reflects a hopeful trend.  In addition, the latest measure of consumer confidence showed significant improvement, though from an extremely weak level to a somewhat weak level.  Also, sales during Black Friday and Cyber Monday increased significantly compared to last year, though as discussed elsewhere, this may not mean that holiday sales will also rise at a similar rate.  Thus, there are some indications that the US economy is improving somewhat; not strong economic growth, but not teetering on a recession.  However, if the situation in Europe leads to global financial contagion, the US economy is clearly at risk.

What is a recession and are we in one?

The National Bureau of Economic Research (NBER) is the group that determines when recessions begin and end.  But isn't a recession 2 or more consecutive quarters of declines in real GDP?  If so, why would we need a group to determine whether there's a recession?  Both the recession of 1980 and 2001 did not fit the commonly cited rule of thumb (i.e., real GDP did not decline for 2 consecutive quarter).  What does the NBER consider?  The three primary variables are real GDP, economy-wide employment, and real personal income (though they consider other variables as well).  According to a report released this morning (see table 5), real personal income less transfer payments (the measure used by the NBER) declined for the second consecutive month (down 0.1% in July and down 0.2% in August).  Payroll employment was flat in August while aggregate hours worked declined.  We won't get the first estimate for economic growth in the third quarter until the end of October, but most economists expect it to be small but positive, continuing the pattern of weak growth from the first half of 2011 during which the US economy grew at a 0.8% rate.  Add it up and it's a close call.  Since the declines in real income have only been for 2 months, payroll employment hasn't declined yet, and real GDP is still inching forward, it's still too soon to declare a recession.  Economists may debate whether we're on the verge of a recession, but for the average person, it still feels like one.

Recession forecast from Business Cycle Research Institute

Lakshman Achutan, COO of the Business Cycle Research Institute (BCRI) was on CNBC this morning and stated that the US economy is entering a recession.  He stated that it doesn't depend on further economic shocks from Europe and that it's not clear how deep the recession will be.  What's his track record?  The BCRI relies on a series of short-term, medium-term and long-term leading indicators of the economy.  They've correctly forecasted most of the recent recessions.  Recently, BCRI predicted that the current recession would end in the summer of 2009 (several months before it occurred) and dismissed the chance of a double-dip recession last year.  Both forecasts proved to be correct and show that they are not doomsday forecasters.  Here's a link to their report that discusses their recession forecast.