COMMENTARY: THIS PAST MONTH SEVERAL ECONOMIC INDICATORS HAVE FLASHED AN UPTURN OF THE US ECONOMY. MEDIA PUNDITS AND GOVERNMENT SOURCES HAVE JUMPED ON THESE NUMBERS TO HYPE A COMING RECOVERY–A SONG THEY’VE BEEN SINGING FOR THREE YEARS NOW. NOVEMBER JOBS, RETAIL SALES, AND TODAY’S HOUSING NUMBERS ARE REFERRED TO AS INDICATING THE RECOVERY (ONCE AGAIN) IS UNDERWAY. THIS VIEW IS VERY SHORT TERM AND MYOPIC, HOWEVER. FOR ONE THING, THE NUMBERS ARE HIGHLY QUESTIONABLE FOR NOVEMBER JOBS, DEBATABLE FOR RETAIL SALES, AND NOT ALL THAT SIGNIFICANT FOR HOUSING. ONE RECENT CRITIC OF MY LONGER TERM VIEW–FORECASTING A DOUBLE DIP IN LATE 2012-EARLY 2013 AT LATEST AND POSSIBLY EARLIER SHOULD THE EUROZONE CRISIS TURN FOR THE WORST IN 2012–HAS CHALLENGED MY LONGER TERM VIEW AND MY COROLLARY VIEW THAT WEEK TO WEEK AND MONTHLY DATA ARE NOT THE PROPER FOCUS FOR A FORECAST OF THE US ECONOMY 2012-13. HOWEVER, HE HAS RAISED AN IMPORTANT POINT WORTH DISCUSSING: IS THERE A RECOVERY NOW UNDERWAY BASED ON ONE MONTH’s QUESTIONABLE DATA? I STILL SAY NO. HERE’s WHY: THE PROBLEM WITH MAINSTREAM ECONOMISTS AND THEIR HYPING OF RECOVERY UNDERWAY YET AGAIN BASED ON LAST MONTH’S NUMBERS IS THAT THEY ARE MESMERIZED BY THE IMMEDIATE DATA AND CANNOT SEE THE BIGGER TURNING POINTS IN THE US AND GLOBAL ECONOMY THAT HAVE BEEN THE PRIMARY DRIVERS SINCE 2007. BASED ALMOST EXCLUSIVELY ON SHORT TERM DATA THAT IS OFTEN VOLATILE, THEIR MODELS FOR PREDICTING THE US AND GLOBAL ECONOMIES DIRECTION ARE DEFICIENT. THAT SHORT TERM FOCUS ON OFTEN QUESTIONABLE, AND CERTAINLY INTERPRETABLE, DATA IS WHY THEY HAVE FAILED TO FORECAST THE 2007-08 CRASH, WHY THEY THEN ERRONEOUSLY FORECAST RAPID RECOVERY OF THE US AND GLOBAL ECONOMY AFTER 2009, AND WHY TODAY THEY CANNOT SEE WHAT IS COMING IN 2012-13. THE FOLLOWING IS MY BRIEF REPLY TO ONE OF THEIR DEFENDERS OF THE OFFICIAL SHORT TERM ECONOMICS VIEW, WHO HAS POSTED HIS OPINION TO THIS BLOG AND OPENED AN IMPORTANT POINT OF DISCUSSION. I RESPECTFULLY DISAGREE WITH HIS DEFENSE OF WHAT HE CALLS THE “DEAN BAKER” VIEW–i.e. THE VIEW THAT ECONOMIC RECOVERY IS UNDERWAY AND MY FORECAST OF DOUBLE DIP IN 2012-13 IS INCORRECT. (NOTE: IN EARLY JANUARY I WILL BE POSTING TO THIS BLOG A MORE IN DEPTH ANALYSIS WHY THE US ECONOMY WILL SLOW ONCE AGAIN IN THE FIRST HALF OF 2012).
A REPLY TO A CRITIQUE OF MY FORECAST, by Jack Rasmus
Once again you, and Baker, are looking at short term economic indicators. You are forecasting the present, and not the future. You are no doubt referring to the questionable data on employment last month and today’s hyped housing numbers. Job numbers for the past six months are averaging less than 100,000. Last month’s 120,000 were 40,000 retail Xmas jobs–virtually all part time and temp that will disappear next January. The housing numbers are apartments building and are in response to what looks increasingly like a QE3 coming next spring, that will drop mortgage rates closer to 3%, that builders are now planning to take advantage of. They will build while it is cheap and wait to sell the inventory. Retail sales numbers recently are driven by banks issuance of credit cards once again and a drop in the household savings rate. These cannot and will not continue. Look at the longer picture: first, the Eurozone is headed into a deep recession. Most of it is already there. China is contracting sharply, heading for a hard landing; so is India, Brazil and other sectors of the global economy. That means global manufacturing is in for a contraction, which may be already underway, and that sector of the US economy will perform poorly next year. As for consumption, household real income declined by nearly 4% last year and more of the same is coming this year. The government sector will continue to contract in 2012, especially state and local. The problem with guys like you and Baker is that you cannot see beyond 2-4 weeks and you are mesmerized by the immediate data. You cannot forecast the turning points in the US and global economy with your limited models. The big picture your data does not factor in is a rapidly slowing global economy, Eurozone crisis and global contraction of bank lending, continual downward pressure on US household income (which ultimately determines consumption), and continuing deficit cutting and government spending contraction. When I predict a double dip, it has always been in the time-frame of late 2012-early 2013, or earlier if the Eurozone and or China contractions emerge significantly more severe by mid-year 2012. So, address those arguments if you wish, and not the day’s latest (often questionable) numbers. It’s that kind of short-term view that makes guys like you miss the 2007-08 crash, erroneously predict rapid recovery after 2009, and now fail to see what is coming further down the road.