At Business Insider Mike Shedlock makes the case that the U. S. is already in recession:
The US is in a recession now. I am not the only one who thinks so.
Last Friday, I received an email from Rick Davis at Consumer Metrics, complete with an Excel spreadsheet that shows that had the GDP deflator been based on the consumer price index (CPI) rather than the BEA’s measure of price inflation, the US would already be in the second quarter of contraction.
It’s certainly no surprise. Based on my own favorite metric, the shopping mall parking lot-o-meter, a brand spanking new recession has been building for some time.
More anecdotal support: the owner of my local Chinese takeaway tells me that he’s never seen business so slow. He’s been operating for more than 50 years.
Public school teachers are starting to receive their first checks of the new school year. I wonder how many of them are seeing declines in take-home pay despite their step increases due to increases in their contributions for their healthcare?
CPI is an upper bound on the cost-of-living not exactly the same thing as a measure of inflation. One should always keep that in mind.
Or let me put it this way, why prefer the CPI over the GDP deflator? Both are measures of inflation. Should we prefer the CPI because it is “larger” (i.e. it tends to reduce GDP by more when we use it to convert nominal GDP to real GDP)? The GDP deflator will take into account substitution effects as prices rise, whereas the CPI will not over a shorter period of time. Here is the BLS on the “best measure of inflation” and the CPI,
Since GDP encompasses more than just consumer spending on a given basket of goods, using it do calculate real GDP is somewhat controversial. Even if there is a difference between the GDP deflator and the CPI, it isn’t clear to me that we should go with the CPI. I think you’d want to understand why there is a significant difference first. Maybe the problem is with the CPI. Maybe it is the fixed basket of goods. That basket does get updated, but not that often whereas the GDP deflator would automatically “update” since it accounts for potential substitution effects. Of course, maybe that isn’t what is causing the divergence. But simply saying, “Oh things are worse when you use the CPI, therefore we are worse off!” doesn’t strike me as very good reasoning.
Steve, if you like I can edit your comments before you post, with an eye towards html tags and such. Just sayin’. ; )