The Chances of a "Double-Dip" Recession are Essentially Nil

[babylonsister]

Not being a macroeconomist, I'll take their word for it.

http://macroadvisers.blogspot.com/2010/06/chances-of-double-dip-are-essentially.html


The Chances of a "Double-Dip" are Essentially Nil




The Business Cycle Dating Committee of the National Bureau of Economic Research has yet to call an official end to the recession that began in December of 2007, but most forecasters (and at least one outspoken member of the Committee, Bob Gordon) now believe the recession ended around the middle of 2009. We believe the recession ended in either June or July, so that the economy has been expanding for about a year.

Early in the recovery many forecasters, concerned that the nascent expansion was fueled only by temporary inventory dynamics and short-lived fiscal stimulus, fretted over the possibility of a double-dip recession. Now, with the emergence of the sovereign debt crisis in Europe, that concern has re-surfaced. Certainly we recognize that the debt crisis imparts some downside risk to our baseline forecast for GDP growth. However, based on current, high-frequency data — most of which is financial in nature and so is not subject to revision — we believe the chance of a double-dip recession is small.

One way we assess these odds is with a simple but empirically useful “recession probability model” in which the probability of experiencing a recession month within the coming year is a weighted sum of the probability that the economy already is in recession and the probability that a recession will begin within a year. The former probability is estimated as a function of the term slope of interest rates, stock prices, payroll employment, personal income, and industrial production. The latter is estimated as a function of the term slope, stock prices, credit spreads, bank lending conditions, oil prices, and the unemployment rate. Currently this model, updated through May’s data, estimates that the probability of another recession month occurring within the coming year is zero. (See Chart).

While ex post this model has a perfect record of predicting recessions, ex ante its predictions are only one factor we weigh when considering whether to introduce a double-dip recession into our baseline forecast. Still, the extremely low current reading is in notable contrast to readings during the early phase of the sub-prime crisis when the probability of recession flirted with 50% for a year before then finally rising strongly above that marker during the second half of 2007. At least by this measure, the economy appears to be in a less vulnerable position now than it was then.

[customerserviceguy]

1. It's just a wild-ass guess, that's all

Funny how these economic forecasters only have 20-20 vision when looking in the rear view mirror.

[Oregone]

2. Nil? Isn't that a stretch when referring to almost any human activity?

Time will tell.

BTW, whatever happen to all those toxic assets? Did they just disappear?

[ProgressiveVictory]

4. you got it!

[HughMoran]

6. Your roach ate them

[Oregone]

8. He's just warming up

[laughingliberal]

18. Yes, the TARP fairy sprinkled TARP dust on them and 'poof,' problem solved. nt

[neverforget]

3. And economists never saw the dot com and real estate bubbles either.

[napi21]

5. I spoke to my broker today about his opinion on a DD recession.

He said it's not IF, it's how deep & how long. The market ges up, they there's a sell off & it goes down. That's just the way it works. He said nobody knows the answer to how deep & how long...O WHEN!

[KansasVoter]

10. LOL....a lot of brokers make less than me. It is just a job.

[liberal_at_heart]

7. Nobody knows what is going to happen

The economists don't know what's going to happend and neither do all the people who seem to think that our economy is going to completely collapse. I can understand being cautious but some people are starting to sound like the Y2K people or the 2012 people.

[bluestateguy]

9. How much time has to pass b/w recessions before it's not a double dip anymore?

That is, if 2-3 years go by b/w recessions is that really a double dip?

[MadHound]

11. No, not really,

The Great Depression was actually a series of major dips space 2-4 years apart. Japan's Lost Decade was also a series of major dips that occurred every few years.

[Gaedel]

14. Hellacious dip in 1938

My grandfather weathered most of the depression, but almost lost his business in 1938. A couple of guys saved him with some cash infusion.

[Statistical]

22. Generally speaking no. Because 2-3 years would be 8-12 qtrs of economic expansion.

There have been so few recessions (relatively speaking) in modern history there are no hard & fast rules of what constitutes a double dip and what simply is recession-expansion-recession.

Generally an expansion of less than two years is considered part of a larger recession (i.e. double dip) but definitions vary.

[BzaDem]

12. Krugman unfortunately disagrees with their specific analysis.

They are using assumptions that do not hold at the zero-lower-bound.

http://krugman.blogs.nytimes.com/2010/06/11/misplaced-optimism

[David Zephyr]

16. As does Robert Reich, George Soros and others.

The truth is that no one knows.

Jumping back into the market on what one might perceive to be the last "low" could be a fool's folly or a lucky strike.

I'm on the sidelines. It's too volatile.

[MadHound]

13. Yeah, right,

And another set of economists at the World Bank and Federal Reserve are saying that no, there is a definite possibility of a double dip.
<http://economictimes.indiatimes.com/news/international-business/Double-dip-recession-cant-be-ruled-out-World-Bank/articleshow/6030729.cms>

Not to mention the fact that our economy is, in many ways, simply not growing. The only positive job numbers come from temp census jobs. A whole graduating class of college students have hit the market, only to find there are no jobs. The total unemployment figures are running between sixteen and seventeen percent (a number that by some measures is much higher). And today's good news, retail sales did a major drop last month, 1.2%

All you're doing, all this administration is doing right now is whistling past the graveyard on the economy. The fact of the matter is that we were a weak economy when the real estate bubble burst, and our economy is even weaker now. What we're looking at is something akin to Japan's lost decade, with unemployment rates totaling double digits for the foreseeable future, and an entire generation of young people having to put off their future as they struggle to find a decent job and pay off crushing student debt.

[earth mom]

15. So who's floating this piece of propaganda, the banksters?

:eyes:

[laughingliberal]

19. My guess? Someone not happy with Bernanke telling Congress now is not the time to cut spending.

This was a shocking reversal of his position until now. When I read, the other day, that he warned Congress that cutting spending 'right now' would be a mistake, I was pretty sure he (finally) saw us heading straight for the DD.

[On the Road]

17. "Nil" is a Pretty Strong Word

but I for one tend to agree with the analysis. The only event which is at all likely that could trigger another recession is a debt crisis in a state like Greece, Spain, or Ireland.

[NightWatcher]

20. well shit, if it came from an investment company's blog it MUST be true

I'm sure they wouldnt be just saying so to get more customers or to put them at ease. I think I'll send them all my money right now.

[hughee99]

21. Bookmarked! We'll see... n/t