USA Today’s Economists Predicting U-Shaped Recession-Recovery

The panel of 46 economists surveyed by USA Today sees a better than expected recovery under way:

The recovery is shaping up to be stronger than expected and there is little risk the economy will slip back into a recession, according to USA TODAY’s quarterly survey of 46 leading economists.

Yet most still say the rebound will fall short of the sharp, V-shaped upturns that often follow severe slumps, and the 9.7% jobless rate will fall slowly.

The emphasis is mine.

Here’s hoping that we’re in a sustained recovery.

15 comments… add one
  • Michael Reynolds Link

    So let me see if I have this straight: housing is slowly recovering, GM is repaying its loans (albeit in a hinky sort of way) and looks as if it may well survive, TARP is costing much less than anticipated rather than more, retail sales are up, the dollar is looking pretty stable, the Chinese have not cut us off, the deficit this last year actually rose a bit less than expected, there doesn’t seem to be much inflation, and the stock market continues to climb.

    Now, did all this loveliness happen because of, or in spite of, Mr. Obama’s policies, (both enacted and expected?) Because I could have sworn that the consensus of the Glittering Eye commentariat was that Mr. Obama was stabbing the economy right in the neck.

    It’s been a pretty solid diet of gloom around here and yet these economists seem to think things are going pretty well. Especially considering that just 15 months ago when Obama was sworn in we were all brushing up on our Woody Guthrie songbook, downloading the hobo sign app for our iPhones and doing hamstring stretches in preparation for leaping aboard freight trains.

  • Drew Link

    Nice set of straw men, Michael. Hope no one has a match.

    The facts are that it was Obama and the left proclaiming the resurgence of hobo-ism, all for political campaigning purposes – and a ruse to justify massive government intervention.

    Honest people, like me, didn’t buy into that Great Depression II line ever. Rather, (and I continue to) worry that we are basically going to go sideways for years.

    Since you aren’t, let’s get serious here:

    Housing is not “recovering” yet. It is stabilizing. Views vary as to whether prices have reached equilibrium, or not. But we are not rebounding. One cause, very slow new home starts is good for establishing equilibrium, but not good for GDP, especially relative to its impact over the past 15 years. Further, govt stimulus is ending, Alt-A loans still going bad, and mortgage rates on the rise. Prognosis: problematic, but not recovery yet. In addition, commercial is a drag right now.

    Retail sales are undeniably up. However, everything I’ve read indicates it is being driven by a drawdown in savings (not sustainable), monies freed up by loan default, and a stock market driven wealth effect. More on that later. That does not seem to be a set of good long term fundamentals.

    Inflation. You can’t have it both ways. The economy is being spurred in part by basically zero interest rates. But inflation currently is zero because the velocity of money has declined dramatically (banks not lending). If recovery takes hold, the banks will lend. So when rates go up in response to inflation worries it will have a choking effect on economic activity………………..or you can have Carter era inflation.

    Same with the Chinese. In fact, the Treasury auctions are getting harder. Foreign lenders may not have completely throttled down (with attendant rate increases yet) but don’t dismiss the issue.

    On the stock market, and unemployment. I confess I’m surprised. I think the market is musical chairs. Only time will tell. And on unemployment, I know of no economist predicting 9% unemployment. (Or a significant decrease in 2011) If that’s your definition of a rebound, or satisfactory performance I don’t know what to tell you. This sort of structural problem is just what I have been predicting.

    Lastly, the Larry Kudlow piece got alot of pub recently. But few apparently really read it. He predicted near term rebound strength, but then recited all the long term issues (that I also just cited) that would cause 2011 and on to be sluggish. From where I stand, this is unfolding just as the “Glittering Eye commentariat” has predicted.

  • Michael Reynolds Link

    The facts are that it was Obama and the left proclaiming the resurgence of hobo-ism, all for political campaigning purposes – and a ruse to justify massive government intervention.

    Oh? Then why was Hank Paulson (Mr. Bush’s Secretary of the Treasury) supposedly on his knees to Nancy Pelosi and in a panic? You really need me to find the quotes from just about everyone in the Bush administration?

    You’re rewriting history because you were simply wrong.

    You want to parse the difference between “recovery” and “stabilization?” Me, I kind of think if I’m falling off a cliff that not falling anymore is a recovery.

    Face it: real economists, left, right and center, just went on the record saying that the economy is showing signs of a surprisingly robust recovery with very little chance of a double dip.

    So you may yet be right — stopped clocks and all that — but so far you’re wrong.

  • Michael Reynolds Link

    One more thing, Drew: if it was all Democratic campaign rhetoric why exactly did John McCain “suspend” his campaign to rush back to Washington and save us all?

  • In my own case, Michael, I don’t think I’ve been either inconsistent or wrong. I’ve been saying all along that, if we were lucky, there’d be a U-shaped recovery and, if we were unlucky, an L-shaped one. A week or so ago I scoffed at the Larry Kudlow column touting a V-shaped recovery. Right now the majority opinion among the economists surveyed by USA today as noted above is that we’re going to have a U-shaped recovery.

    You can’t know the difference between a U and an L until you’ve in the more robust recovery phase. We ain’t there yet.

  • Drew Link

    “Then why was Hank Paulson (Mr. Bush’s Secretary of the Treasury) supposedly on his knees to Nancy Pelosi and in a panic?”

    Supposedly on his knees, eh? That’s a good visual. And this qualifies as an argument for you?

    Do you want me to get all the Obama and Democratic pol quotes? You don’t want that, Michael. But humor me. Find me quotes from “just about everyone in the Bush administration” that the Great Depression II was coming. (No slight of hand, now. Comments on the September 2008 liquidity crisis are not predictions of The Great Depression II. Obama and his pols flogged this theme well into February 2009, well after the liquidity issue.)

    You want to parse the difference between “recovery” and “stabilization?”

    Uh, well, yes. Because that is precisely the point. A recovery implies getting back to the original GDP trajectory and employment levels. (“V’s” and “U’s” and such.) Economists refer to it as the output potential gap. Stabilization implies just that – stabilization – and then on to the so called “new normal,” which is less than previously perceived potential. That has been the position expressed here for quite some time: slogging along at sub-optimal GDP and high unemployment.

    “Face it: real economists……….etc”

    Face it: none are projecting unemployment to get below 9% this year, or 8.5% next. Your callous view toward the unemployed, in a desperate need to support a politician, is duly noted.

    “So you may yet be right — stopped clocks and all that — but so far you’re wrong.”

    Actually, I’m right. What is it you don’t understand about unemployment > 9%??

    You may write wonderful books, but an analyst you are not. Actually interpreting what is written here, as well as some time spent at the site “econbrowser” would be helpful. BTW – I’m not so hot on Menzie Chin, but I generally like James Hamilton’s stuff.

    As a last point. This really matters to me, outside of any political considerations. I’m sure you are doing fine, Michael. I’m doing fine. But the Average Joe is not. And as an owner of businesses, as one who speaks to owners regularly, I’m telling you they are in no way of the mindset as expressed by these economists. And that matters. They are the key to recovery.

    In addition. In advance of increases in tax rates there is an incredible amount of activity underway this year. This will fill 2010 tax coffers…………..but 2011 is going to be a splat.

  • Oh? Then why was Hank Paulson (Mr. Bush’s Secretary of the Treasury) supposedly on his knees to Nancy Pelosi and in a panic? You really need me to find the quotes from just about everyone in the Bush administration?

    You’re rewriting history because you were simply wrong.

    I agree with your first part Michael, the behavior the Bush administration at the end there was bad….as has been the Obama administrations behavior. Hence I can’t go along with your second comment I’ve quoted. Drew’s analysis seems pretty good. In the data I look at I think there is a case to be made that the economy is stabilizing, but recovering….idk.

    You want to parse the difference between “recovery” and “stabilization?” Me, I kind of think if I’m falling off a cliff that not falling anymore is a recovery.

    We were never “falling off a cliff”. Comparisons and invocations of depression were misleading. In fact, in late 2008 I was surprised at how mild the recession looked…then things got alot worse. Why? Could the decision not to save Lehman have been part of it? You see the Feds saved LTCM. They saved Bear Sterns, Fannie and Freddie, and AIG; at least they didn’t cut them totally lose. But Lehman they cut them lose, “Sorry guys but you are on your own.” Every other financial institution on Wall Street probably shit bricks…I mean real bricks, nice and red and ready to make a wall. Up to that point the Feds had been willing to keep things from going completely to Hell, then the Feds reversed course.

    http://www.cato.org/pubs/regulation/regv32n4/v32n4-6.pdf

    So now you go from what may have been a mild to bad recession to one of the worst in last 100 years.

    Still, I doubt we’d have wound up with a 1930’s style depression. Why? Government spending was a much, much larger protion of the economy than before. Just the Federal spending alone is something like 18% of GDP. That wouldn’t change much (save perhaps upwards). It would have acted some what as an automatic stabilizer. Add in that health care is also a huge part of the economy now (and to use Dave’s terminology a government hand-maiden industry), and that spending isn’t likely to take as big a hit as other parts of the economy either.

    Face it: real economists, left, right and center, just went on the record saying that the economy is showing signs of a surprisingly robust recovery with very little chance of a double dip.

    U-shaped is not robust. Its better than L-shaped, but it certainly isn’t V-shaped. The question is how broad is the bottom of that “U” is it going to be like:

    \__/

    or,

    \_______/.

    I wouldn’t be too thrilled with the second one. And given that the recovery in unemployment for the last two recessions has been increasingly laggy….I’m inclined to go with the second.

    By the way, calling the GM loan payback merely hinky highlights why I think you have some serious blinders on here. It is very much like you taking $10 out of your wallet (in your back pocket) putting it in your right front pocket and then your left front pocket and saying, “There I spent $10, but made $20, so I’m up $10 buck!”

  • Michael Reynolds Link

    I’m terribly sorry, of course you’re right. There was never any problem. Which is why Henry Paulson titled his book:

    On the Brink: Inside the Race to Stop the Collapse of the Global Financial System

    To an uninformed reader “Race to Stop the Collapse of the Global Financial System” might seem like Hank thought we were in imminent danger of suffering a collapse of the global financial system. But I can see that you guys are too smart to fall for that obvious interpretation. A better-informed observer of course understands that what Paulson meant was:

    Near the Gently-Curving Shoreline: The Pleasant Stroll To Maybe Check Up On The Thoroughly Healthy Global Financial System.

    I blame his publisher.

    And an impartial and well-informed observer must likewise conclude that Senator McCain’s suspension of his campaign saying, “We are running out of time,” was merely a reference to Mr. McCain’s desire to take advantage of a soon-to-expire coupon for a discount at his favorite Washington area dry cleaner.

    It was taken out of context. The full statement read, “Aiiieeee, we’ll all be killed, we’re gonna die, we are running out of time to take advantage of these incredible savings on shirts and men’s suits!”

    The point is: despite the fact that the stock market — that is to say the collective wisdom of everyone with money to invest — and the collective wisdom of our panel of actual economists says one thing, that should in no way diminish my readiness to believe what I read in blog comments.

  • Michael,

    Are you trying to be deliberately dishonest or are you just making what you think is a joke? I didn’t say there was nothing wrong, but that we weren’t falling off a cliff. There is quite a lot of room between those two points, IMO. Yes a recession isn’t good as it means people are unemployed and suffering hardships.

    And an impartial and well-informed observer must likewise conclude that Senator McCain’s suspension of his campaign saying, “We are running out of time,” was merely a reference to Mr. McCain’s desire to take advantage of a soon-to-expire coupon for a discount at his favorite Washington area dry cleaner.

    No, like Paulson I think it was political manuevering that ultimately back fired on McCain. Hence I don’t take it at face value.

    The point is: despite the fact that the stock market — that is to say the collective wisdom of everyone with money to invest — and the collective wisdom of our panel of actual economists says one thing, that should in no way diminish my readiness to believe what I read in blog comments.

    Funny, weren’t you just telling us that economists and their predictions are little better than reading sheep’s entrails or something like that? Now they are to be taken seriously. I’m thinking this sudden change of heart is rather convenient since it also allows you to burble on about how great Obama is.

  • Michael Reynolds Link

    Funny, weren’t you just telling us that economists and their predictions are little better than reading sheep’s entrails or something like that? Now they are to be taken seriously. I’m thinking this sudden change of heart is rather convenient since it also allows you to burble on about how great Obama is.

    There’s no change of heart. I don’t think the science of economics as it relates to predicting the future is any more of a hard science than anthropology or sociology. It’s scarcely an improvement over astrology.

    Aren’t you the one with the credibility problem as it relates to economics? You take it seriously, but you dismiss these economists while at OTB taking seriously a group far less credentialed and far more narrowly-drawn.

    So are economists to be trusted or not?

    I’ll stick with not. And I apply it equally to the 46 and the 75 and the 2 and any other gaggle you want to put together. Because human activity has never been, and never will be, predictable. Random behavior cannot by definition be predicted; emotional behavior cannot be observed with sufficient accuracy to be predicted; the interplay between individuals and between individuals and institutions, and the effects of those interaction are too complex, too obscure and too little understood to be predicted.

    Homo sapiens cannot be modeled. Even if you had in your hands every possible metric, and each number was accurate, you would still not be able to predict six months ahead because you can’t know what you don’t know, you can’t see what shocks or uplifts may occur, you cannot guess whether a million people will experience a sudden glow of irrational optimism, or whether a profitable new invention might surface. The unknowns are endless. In an endeavor where a miss by just a few percent can spell the difference between recession and recovery that many unknowns will defeat attempts at prediction.

    I believe in economics as a descriptive, backward-looking science. As a prophetic science? It’s a fortune cookie.

  • Drew Link

    Michael –

    Rather than flopping around like a fish on a dock torturing various bits of commentary and evidence to make your point you need look at only one hard piece of evidence. The unemployment rate remains exceedingly high, and any economist I’ve read has the rate at greater than 8% through 2011. That’s 4 years on from when people say this all started.

    Further, most economists I read indicate that as money velocity picks up that inflation is on the way. They used to publish the combined unemployment and inflation rates in a “mysery index.” One has to wonder, with the state of “journalism” today whether that statistic will hit the press. But in 2010 and 2011 it should be Carteresque. Now if you consider this a good result, I just don’t know what to tell you.

    If you throw in the potential GDP curtailing effects of coming tax increases and rising interest rates. Well..

    You really need to dump this Obama vs Bush – Republican vs Democrat thing. In my view the issue is Obama policy vs the natural corrective and recovery tendencies of the US economy. And I don’t think its unfolding very well.

    I’d love to be wrong, and sit here on June 1, 2011 with you gleefully chiding me. It would be great for the country and especially the millions now unemployed. But I don’t think you will be.

  • Aren’t you the one with the credibility problem as it relates to economics? You take it seriously, but you dismiss these economists while at OTB taking seriously a group far less credentialed and far more narrowly-drawn.

    Where have I dismissed them? I’m dismissing your recapitulation of what has been written. There is a difference. You are sounding like a cheerleader for Obama and saying things like robust recovery when I’m just not seeing it and apparently neither are these economists.

    So are economists to be trusted or not?

    I think any forecast needs to be taken for what it is, a forecast. At best an educated guess about where things are going to go. In some cases the guess can be quite good, in others no so much. For a specific industry guesses might be pretty decent most of the tiem. For an entire economy there is probably alot more error due to initial assumptions turning out to not be true.

    Because human activity has never been, and never will be, predictable. Random behavior cannot by definition be predicted;

    In some ways it is, at least qualitatively and in some of those even to some degree of accuracy quantitatively. Price of gasoline goes up…shock…consumption of gasoline goes down. By saying human nature is never predictable you make it sound like human nature is purely random. I’m at work, but by your assumption in the next hour I could be at home, in Orange County, or on a plane to Denmark. However, I’m going to hazard a guess that I’ll still be at work. As will Frank in the cubicle next to me. Your claims of randomness are to be rejected by even the most casual empirical evidence.

    Homo sapiens cannot be modeled. Even if you had in your hands every possible metric, and each number was accurate, you would still not be able to predict six months ahead because you can’t know what you don’t know, you can’t see what shocks or uplifts may occur, you cannot guess whether a million people will experience a sudden glow of irrational optimism, or whether a profitable new invention might surface. The unknowns are endless.

    There is quite a bit of research in different fields than just economics that suggests you are wrong. Consider the Michael Hypothesis: people behave emotionally and randomly. So, if we strand a person on an island with various sources of securing shelter and food and the basic necessities of life there is still a probability that this person will instead start looking for a way to buy a lottery ticket, making out a shopping list for clothing, looking for a telephone, checking behind rocks and trees for the remote for the television, or even wandering around wondering where he put his car keys. Instead of gathering fire wood, fruit, building a shelter, trying to come up with a means to catch fish, finding water, etc. I on the other hand, think that the second list is more likely than the first.

    Your hypothesis means we can say nothing ever about what people might do. Punch someone in the nose and they might start dancing a jig or pay their attacker $20. All possibilities are open and all should be given serious consideration. It is an utterly and totally useless hypothesis. There is no point of government policy of any kind or even having a government since people behave emotionally and randomly. Next time you get in the car you are as likely to put it into drive and drive it through your garage wall and into your house/backyard as you are to back it onto the driveway. Really? I’m calling Bravo Sierra on that.

  • Drew Link
  • Drew Link
  • Drew Link

    About those GM loans being “repaid.” From an opinion biece by Sen. Grassley.

    General Motors announced this week that it repaid its multibillion-dollar taxpayer-backed TARP loans. GM even bragged that it was able to “repay the taxpayers in full, with interest, ahead of schedule, because more customers are buying [GM] vehicles.” There was great fanfare, including expensive, around-the-clock GM TV commercials nationwide. But, the hype is not the reality. In fact, GM did not repay the loans with money it earned from selling cars. Instead, GM repaid the TARP loans with money it withdrew from another TARP fund at the Treasury Department.

    The day before the GM story broke, Neil Barofsky, the government TARP watchdog, testified before the Senate Finance Committee. He explained that GM did not use earnings to repay its TARP debt. The April quarterly report to Congress from his office stated: “The source of funds for these quarterly [debt] payments will be other TARP funds currently held in an escrow account.”

    GM filings with the SEC reveal that GM was paying 7 percent interest on a $6.7 billion TARP debt. The filings also confirm that the source of funds for GM’s debt repayments was a multibillion-dollar TARP-funded escrow account at Treasury; that means it was taxpayer money — not earnings.

    Meanwhile, in all the fanfare and patting themselves on the back, Treasury and GM made no mention of what happened to the $2.5 billion loan GM owes its union health care plan. The union loan carries a 9 percent interest rate and runs until 2017. Don’t most Americans try to pay off their higher-interest debts first? Well, the union loan was not paid off. Why not? Does the union get to keep collecting 9 percent from GM until 2017, courtesy of the American taxpayer, while taxpayers give up a 7 percent return over the next five years in exchange for the hope that GM stock will be worth more than what we paid for it, someday down the road?

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