Monday, April 19, 2010

NBER BCDC Member Robert J. Gordon Comments

On April 12 Robert J. Gordon, a member of the NBER Business Cycle Dating Committee, wrote of the reasons why he believes that "It is obvious that the recession is over."

There are many noteworthy items in his article, and I could extensively comment on his arguments. Needless to say I disagree, fully or partially, on many of his points.

I will highlight four items. First, I found this to be interesting, and it underscores the initial severity of the downturn:

"There was a powerful economic downdraft that started with the failure of Lehman in September 2008 and extended into the winter and spring of 2009. Everybody panicked. Firms laid off employees by the millions, and real gross private domestic investment declined between 2008:Q3 and 2009:Q2 at an unprecedented annual rate of -41.6 percent, even faster than at any time during the Great Depression."

Second, this is highly notable:

"Thus the American economy is enjoying strong upward momentum that is evident every day in the announcements of retail sales, service sector production, and almost everything else. There are no negatives in the actual data, but rather the negatives reside in doomsayer worries that consumers are too weak to spend or that the economy will collapse after the Obama stimulus dollars have been spent."

I strongly disagree with this above statement. While there have been signs of "strong upward momentum" - as he suggests - there are also many signs of pronounced weakness, broadly seen across many measures. Various posts on this blog discuss these measures and weaknesses.

Third, he states, "A double dip, i.e., two quarters with negative real GDP growth, is extremely implausible at any time over the next year."

Fourth, he states, "There are no plausible shocks that would suddenly push real GDP below its trough value of 2009:Q2 in the next year or two."

Those familiar with this blog know that I view this purported economic recovery as unsustainable, due to a variety of factors. Needless to say, I don't agree, for a variety of reasons, with his two above assertions concerning the durability of economic growth.

SPX at 1192.13 as this post is written

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