In the US, a recession is defined by NBER after the fact.

Whether the NBER contradicts us is irrelevant. Less value is going around in the economy.

Keep in mind that the "two consecutive quarters" is just snapshots of the monthly data at 3 month marks. They get revised over time.

It's completely possible that data from Q2 will be revised upwards and there won't be two consecutive quarters of negative GPD in the future. The Q2 data has already been revised upwards once.

We've only recently seen nominal GDP declines in 2008 and 2020.

Exact same amount of data points for inputs as 2% inflation.

Very simple model

Inflation=v1/v2

D(inflation)=sqrt((D(v1)/v2)^2+(v1/v2^2 D(v2))^2)

Suppose

D(v1)=c sqrt(v1)

D(v2)=c sqrt(v2)

D(inflation)=c sqrt(v1/v2^2+v1^2/v2^3)= c sqrt(inflation+inflation^2)/sqrt(v2)

So can be seen that the leading term for uncertainty in inflation is linear with inflation.

Here, I'll give you a hint (More than 100%): https://fred.stlouisfed.org/graph/fredgraph.png?g=UOxC

Do you think that's a real recession indicator?

EDIT: Said differently, if our imports were at 4Q:21 levels, we'd have 0 quarters of decline. So is this the first import-driven recession? Because no other recessions have been like this.

That's not how GDP works? It's not adding up all the things that were made, it's measuring the value an economy produced.

A quirk of that is imports are value an economy consumes (usually offset by Foreign Direct Investment).

If those ships decided to bail from LA and head to Japan, would the economy have 'produced less'?

If the ships bailed and stole your money or destroyed their goods I'm not sure if that still counts as imports or not.

GDP measures how much a country makes, but that's only a proxy for economic activity because trade imbalances exist (and the US economy greatly benefits from its trade imbalance).

So the unprecedented lumpiness of imports shouldn't mislead you into thinking US domestic economic activity is down, when in fact it's just being financed differently (now more via trade imbalance than in previous quarters).

Again, all circling back to my point that the 2Q's of GDP rule is dumb.

Net exports is a component of GDP and it's exports minus imports.

IDK where you got the idea you did.

> (it is domestic product after all)

Yeah, so buying more from overseas than you sell overseas is a net drag on the economy.

EDIT: Like here's the release, check it out for yourself. The tables start on page 11. https://www.bea.gov/sites/default/files/2022-09/gdp2q22_3rd....

But they are hard to exclude, because they get commingled with spending/consumption/investment. So what do you do? Leave them there, but then subtract total imports. They are counted positively, and negatively, so they have no net impact. Think it through and it should make sense.

EDIT: I want to give you the benefit of the doubt here because I like where you're headed (ignoring the timing effect that would make GDP useless under your framework), I really do, but let me chew on this. Because it is interesting, though it does completely ignore FDI (which is how imports are paid for)

But if I import something, that increases GDP (spending is positive to GDP). That starts to mess up the GDP numbers, because that spending is not value an economy produced. You have two choices, try to break down every purchase into domestic or import (impossibly complicated), or just leave it all in, and subtract out total imports at the end to nullify all the import spending (or foreign investment).

If imports went up in Q2, that means spending on imports went up. Those two cancel out for no net change to GDP.

--

My best shot at not being convoluted:

Why do we subtract imports in the GDP equation? It is not because imports reduce domestic production, it is because those dollars were previously added in the GDP equation as spending/investment. So to remove the effect of imports entirely, we need to subtract total imports.

So here's my counterpoint to you and Dr. Wolla, who has made this a big thing ( By the Way the Dunning-Kruger quip was uncalled for and could have really nipped this interesting discussion in the bud, so do with that what you will) ->

We agree that we are talking about quarters here, right? Not long-term GDP? We can agree on that, right?

Per the BEA, imports are tracked at "Collections of customs duties by port from Department of Treasury"

So logically, imports should then flow right into the other categories (Mostly Private Inventories then PCE)

But here's the rub that you don't see: For nonfarm industries, the estimates of inventory change are generally prepared by beginning with data on the end-of-period book value of inventories, as reported by private business using a variety of accounting methods.4 The inventory data are then adjusted—annually for 417 detailed industries and monthly for 82 aggregated industries—to value the inventories at a uniform set of prices and to remove holding gains or losses.

The rub of that is you assume imports immediately become inventory, but there's a lag b/c GAAP tells you to record inventory on receipt and railroads don't count cargo as inventory.

In normal times, no problem, in COVID times, big problem.

So that's why I reference lag and think my point stands (because your 1:1 math is broke), but I do appreciate you pushing me to think even if you were rude about it for no reason.

in your framework, economic activity is up, we are just paying for it via trade imbalance

Wrong, I don't have a framework. I am just trying to explain to you how GDP is calculated. Economic activity is down when measured used GDP.

Your original post misunderstands GDP. I am not being pedantic, it is just incorrect:

Ok, let's play your game. How much of the first quarter decline was due to the ports clearing and imports rising? Here, I'll give you a hint (More than 100%)

Wrong, None of the decline was due to increased imports, because by the definition of GDP, imports are excluded. To quote the fed from the link above, "imports do not add to or subtract from GDP."

You agree that, in aggregate, the amount of consumption/investment/government spend are up, right? GDP has only declined because we didn't make all of it, which, sure, maybe a long-term problem, but irrelevant to a recession.

Wrong, GDP declined because domestic spending and/or investment and/or exports declined. Nothing to do with imports at all. Imports are not included in GDP, ergo, imports can't cause a decline in GDP.

What is happening is that Americans are selling debt/assets in exchange for goods/services (that’s what a trade imbalance is). They are still able to consume and invest an increasing amount of goods/services and there’s no signs of that ability to finance those activities via trade imbalance decreasing any time soon. In fact, the reason GDP went down without C+I+G going down is that they did more of it than ever before!

So keep calling me D-K but you have no idea what GDP even represents (production is not the economy my guy, trade imbalances have an impact).

Like you get that assets/capital formation aren’t in GDP but you can still sell them, right?

And that’s why

> Wrong, GDP declined because domestic spending and/or investment and/or exports declined.

Is incorrect.

None of those things declined, we just financed them with a trade imbalance (instead of production) which is why you should google FDI

EDIT: Lets just put this to rest and answer me this question. Imagine a world where tomorrow, China is willing to sell America everything it wants in exchange for shares of BigCo. (To be clear, the flow is dollars used to purchase RMB, RMB used to purchase goods/services, RMB used to purchase dollars, dollars used to purchase shares of BigCo.)

America takes them up on this deal and increases consumption by 5x overnight. Given that America is importing all its goods/services, it has a GDP of zero, a 100% decline.

Is that a good measure of an economy increasing its consumption of goods/services from $20tn to $100tn, or is the trade imbalance hiding something important there?

Which again, my original point: sure GDP is down, but that reflects trade financing more than it does economic activity (whereas you seem to have this weird fixation of in-quarter production being the only source of value creation in an economy, which lol D-K)

I didn't equate a recession to anything. In fact, I never even used the word recession in any post, I don't have a framework, and not trying to push a political agenda. Literally, all I want to do is help you understand the GDP equation, which is often misunderstood as to how imports are excluded.

(production is not the economy my guy, trade imbalances have an impact)

Might be true, but we were talking about GDP. GDP is production. Imports are not included in GDP, so an increase in imports doesn't cause GDP to go down.

So keep calling me D-K but you have no idea what GDP even represents (production is not the economy my guy, trade imbalances have an impact).

OK, that is a very DK comment because all GDP does is try to represent production. So you may not like GDP, but you don't get to redefine it. It is what it is, flaws and all.

If you want to make the case that the health of an economy shouldn't be measured by GDP, awesome, go do it (somewhere else, I don't care, or even disagree). But when you do it, remember what I taught you: GDP excludes imports, so when imports go up and down they don't change GDP.

GDP is down, but that reflects trade financing

Wrong, because math. Spending is up equal to the amount of imports increasing, so there is no effect on GDP.

Lets just put this to rest and answer me this question.

You are conflating an increase in imports with a decrease in domestic spending. Trade is not zero sum.

Imports cause GDP to go down relative to C+I+G. Full stop. I'm sorry I didn't say "relative to economic activity which should be the true measure of a recession" but again, that's why I call you a pedant.

>Wrong, because math. Spending is up equal to the amount of imports increasing, so there is no effect on GDP.

Yes, but GDP is down relative to C+I+G because of imports. Why are you being so stubborn about that? And honestly, what's the Venn diagram of people who bring up D-K and those who suffer from it? Like ad hominen is a universal sign of intelligence, right?

>You are conflating an increase in imports with a decrease in domestic spending. Trade is not zero sum.

Answer my question about selling debt/assets please. Are those in GDP? Or can you sell things that aren't "produced" by GDP?

Imports are included in C+I+G, so when imports increase, C+I+G also increases. But the goal of calculating GDP is to exclude imports, so imports are subtracted from the total. Therefore there is no effect on GDP from increased imports.

You were wrong when you said GDP decreased because imports increased, which is how this started. That's not being pedantic, that's correcting a misunderstanding of the how GDP works.

Don't feel bad, this is very commonly misunderstood and misreported, so you have company. People see the "- Imports" at the end of the equation and think they understand imports subtract from GDP. Easy but naive mistake. It's your confidence in your misunderstanding that pushes it into DK territory. Your unwillingness to read or comment on the Fed's own explanation of this is a little shocking though.

Definitionally, trading doesn't create things on its own (though I do recognize your D-K mind is probably trying to make an irrelevant and inappropriate point about comparative advantage or personal utility).

The point that you're too stubborn to see is that one can trade goods/services (GDP) for debt/assets (Not GDP), and that is why imports can cause GDP to go down without economic activity going down, which I think is a fair read of the comment that started this whole dumb thing. You seem to have some reason to not want to understand that, even though I've tried very hard to gently inform you of that fact.

Do you not think one of the most important features of the US economy is its ability to form capital/assets? Because if so, I bet you are German.

So yeah you’re right I can’t give it a rest.

But I don’t know why citing BEA releases is considered politics.

Like I get it, you don’t like Biden, neither do I!

But it’s just so weird that people want to pin this fake recession on him, when in reality they should pin other real shit he did like the crypto bubble from stimulus payments or the inflation that followed.

My problem with you isn’t your politics. My problem is that you’re hungry for an easy answer to the detriment of accuracy.

Queen Elizabeth I called; she wants her 16th Century mercantilism back.

Please chill.

I'm aware I'm not 'fighting for my life'

And here we are, two nerds online.

You sure? :)

> And here we are, two nerds online.

Well yeah, that's kind of a given.

This isn't true. There is no "official" declaration of recessions in the US by law. Yes, some federal officials will reference NBER, but that's not the same thing.

Bar far, the most common definition used worldwide is two quarters of negative growth -- and by that definition we're already in a recession.

NBER itself has never not declared a recession after two quarters of negative growth.

I think a lot of folks don't even know that NBER isn't a government organization. It's a private non-profit with a bunch of self-appointed academics that don't even publicly disclose their meeting notes or their criteria for what a recession is. People treat them like the Oracle of Delphi and it's very misplaced.

From: https://www.bea.gov/help/glossary/recession

Do you not consider the BEA an official source? Because I have bad news for you about who tracks GDP if so.

EDIT: and if you’re going to try to wriggle around with the “by law” part of your statement, there’s no legal definition of GDP.

EDIT2: And, just to cut you off at the pass, here's the archive from 2019 with the same exact text: https://web.archive.org/web/20190831041001/https://www.bea.g...

EDIT3: Going for the trifecta, from 1960-2011, NBER had never not declared a recession after one quarter of decline. And in its history, only 1955/1957/2011/2014 break that rule! US GDP just doesn't decline very often in general! And as I've said in other comments this is the very first time that the effect is explained mostly by net exports.

https://www.businessinsider.com/trump-appears-to-misundersta...

"Recessions are generally defined as being six consecutive months of negative economic growth. By this definition, there is no such thing as a two-month recession."

Obviously that is a very widely used and well accepted definition of recession including among experts and industry journalists. The idiotic thing is that's recently being claimed is that's not an "official" definition of recession, as though that makes any difference or makes someone incorrect for using the definition. A government's definition of a word gives it no more weight than anybody else's definition of that word, outside the duties of that government. Arguably the two-quarters rule is the preferred definition because it is more widely used and known. And let's be honest, that definition certainly would be put to use by its most fervent deniers today if there were different politicians in office.

Why did we have a recession in 2000 if that's the rule then? Does 2020 not count since it was 4 months?

And what's your comment on the fact that this is the first 'recession' where the impact can be largely explained by net exports?

Maybe the narrative changed because the conditions changed?

1. Different people have different definitions of recession. Two quarters is probably the most widely used and known one, so it's perfectly valid to use, but not everyone may agree so you can see differences.

2. People have ulterior motives for calling a recession. Even the same dishonest person will use different definitions at different times according to who can be blamed or credited. And there are a lot of dishonest people in government and corporate media.

So put all that aside. "The US is in recession." That's a perfectly reasonable statement that anybody can understand in context even those who have a slightly different definition where it doesn't fit.

I think you're missing the entire point

Whether or not the US is in recession is a very complex decision that is usually easy to make because most of the metrics move in the same direction.

A lot of people (you included) are still living in that world despite the fact that all the metrics are extremely weird right now (pandemic, etc.)

The fact that no one is talking about the weirdness is a major problem.

And you know who will talk about the weirdness? NBER.

> Whether or not the US is in recession is a very complex decision

No, whether or not some government department proclaims the US to be in a recession is based on that "very complex decision". That does not make the other more widely used and known definition of the word wrong or less valid.

"The US is in a recession". Perfectly valid and reasonable statement and any economist and most people vaguely interested in economics and politics will know exactly what is meant if they heard that today.

Agree to disagree I guess

We are at an all-time high in terms of people employed: https://fred.stlouisfed.org/graph/fredgraph.png?g=UysZ

People are consuming more than ever before (even accounting for inflation): https://fred.stlouisfed.org/graph/fredgraph.png?g=UOQs

Now, to be my own Devil's Advocate, real wages are falling (though they are at about where they were pre-pandemic: https://fred.stlouisfed.org/graph/fredgraph.png?g=SxFv

Compare that to even a mild recession like 1990, where we were 2mn below peak employment, real PCE was falling and real wages were falling.

The above is exactly why shorthand rules are not the best tools.

Please expand on what my bias is. I'm curious.

I said it’s not the official (or frankly good) definition. Which it is not.

Then everyone who doesn’t like that assumes it’s some grand political statement when I’m just some autistic guy, moderately critical of Biden, who has a thing for accuracy.

Maybe you should check your own biases given that.

EDIT: don’t believe me? Here’s an earlier comment that also applies to you.

like I get it, you don’t like Biden, neither do I! But it’s just so weird that people want to pin this fake recession on him, when in reality they should pin other real shit he did like the crypto bubble from stimulus payments or the inflation that followed. My problem with you isn’t your politics. My problem is that you’re hungry for an easy answer to the detriment of accuracy.

The population goes up over time (and in fact is currently at an all-time high as well; the US population has never shrunk year-over-year), so this is a bum metric. The labor force participation rate is still lower than it was pre-pandemic: https://fred.stlouisfed.org/graph/fredgraph.png?g=UOVS

Consumer loans are substantially higher than pre-Covid: https://fred.stlouisfed.org/graph/fredgraph.png?g=UOVO (I know this isn't per-capita basis, either, but that's all they have ;-))

So, there are some data points that don't look so rosy, as well. I agree with you that the feeling on the street isn't one that of a recession, though there are hints that we are headed that way.

https://fred.stlouisfed.org/series/SPPOP65UPTOZSUSA

>Consumer loans are substantially higher than pre-Covid

https://fred.stlouisfed.org/series/TDSP

The US Federal Reserve is responding to these economic conditions far stronger than any other central bank, and the US dollar has grown in strength accordingly. Weakening the labor market is one of the goals. That will mean lots of layoffs, in exchange for a reduction in inflation (and domestic purchasing power).

How can such a thing possibly be non-partisan? The people running surely vote in the elections and thus care about the outcome, I don't see how they couldn't be partisan when their statements can have huge effects on the outcome.

I would hope that every member of NBER votes. It's their civic duty.

https://johnhcochrane.blogspot.com/2022/07/woke-week.html?m=...

and that economics in particular is too

https://johnhcochrane.blogspot.com/2022/06/aea-p-measure-of-...

Economics is less partisan than any other social science, with only three times as many Democrats as Republicans but academia in general is merrily burning its reputation for truth seeking and Economics won’t escape. Not being as bad as psychology or sociology where all conservative academics could meet in a small lecture theatre is a low bar.

https://www.nas.org/academic-questions/31/2/homogenous_the_p...

I'll answer my rhetorical because it's important you understand: no.

John's (and I'd probably be on firm footing to assume your) presumption here is that political affiliation automatically means discriminatory bias and inherent exercises in partisanship. I wouldn't call it a universally bad assumption, but it's also likely not a terribly consistent one across the universe of universities and colleges.

I'm glad you recognize that Economics has a more even partisan distribution than some other fields in social science. Many fields are.

Kudos to the University of Austin. May they prove to be a bastion of freedom of thought that stands as vanguard against the cravenness that represents itself as the modern marriage of business conservatives, theocrats, and the eat-the-rich contingent, as well as freedom of thought from all other attacks, whether perceived or real.

Note too: the academy has been attacked before, many times. No matter. Ultimately it converges back to the form of a tenured faculty supported be benefactors in the pursuit of knowledge, even and especially when that goes against their benefactors' preferred version of reality. Fields occasionally ossify and lose value, to be replaced one death at a time, but like writing, speech, and real analysis, the academic model is akin to toothpaste and its relationship to the toothpaste tube.

Good luck out there.

Are you arguing that sociology and anthropology and other more conservative hostile departments are in some way more educated than economists? Or that academia is not a hostile environment for conservatives? I think the pursuit of truth is a great idea and wish more academics believed in it.

> John's (and I'd probably be on firm footing to assume your) presumption here is that political affiliation automatically means discriminatory bias and inherent exercises in partisanship.

I’m not presuming anything. There’s ample research on this. I wouldn’t say there’s automatic discriminatory bias or exercise of partisanship but it exists and it’s not state. See for example https://www.cspicenter.com/p/academicfreedom “Across three Anglophone countries, a significant portion of academics discriminate against conservatives in hiring, promotion, grants and publications. Over 4 in 10 US and Canadian academics would not hire a Trump supporter, and 1 in 3 British academics would not hire a Brexit supporter.”

> I wouldn't call it a universally bad assumption, but it's also likely not a terribly consistent one across the universe of universities and colleges.

Who cares if it’s consistent? If it consistently holds in a subset of schools that’s bad. As it happens one sees open displays of hostility to convervatives across academia, from when Larry Summers was fired as Harvard President to the witch hunt for Josh Katz at Princeton or the hunt for Eric Weinstein at Evergreen College. It’s not rare.

> I'm glad you recognize that Economics has a more even partisan distribution than some other fields in social science. Many fields are.

None in the social sciences. None in the humanities. If you’re arguing that a more even partisan distribution in economics is in some sense good or makes it more trustworthy that says the opposite about other fields.

> [T]he academy has been attacked before, many times. No matter. Ultimately it converges back to the form of a tenured faculty supported be benefactors in the pursuit of knowledge, even and especially when that goes against their benefactors' preferred version of reality.

The research university is not 200 years old. The original academy was closed and Greek academic life lost all vigour at roughly the same time, turning away from anything like production of new knowledge. Universities as producers of knowledge are a new thing and their social role could be usurped by others. Or it could just be lost, for centuries. Good things sometimes just end and are not replaced. Probably not as finishing schools: they’re genuinely good at that.

https://www.history.com/news/how-london-bridge-ended-up-in-a...

> In the United Kingdom, a recession is defined as negative economic growth for two consecutive quarters.

So, technically, the US is in recession in the UK.

I wonder if these people claiming that we are "technically in a recession" will suddenly start saying that economy has recovered come Oct 28.

I absolutely will - that's the whole point of any technical argument.

https://www.philadelphiafed.org/surveys-and-data/real-time-d...

Maybe so, but you might want to also consider at the same time what's happening to all that Boomer wealth mostly tied up in retirement accounts (stocks and bonds) and in the real estate that they own while these interest rates rise. Sure, the effects here aren't equally distributed (neither generationally nor by asset class), but hardly anybody is getting away unscathed.

They apparently don't worry much about stocks. Bonds they care more about (I'd guess their personal wealth is mostly there). Sooner or later they'll probably do something (or bigger somethings).

Real estate is the big question. Will they let it really crash or not?

Huh? The rational response to inflation is to spend. The only thing that inflation triggered, vis-a-vis saving, was a shift from cash and bonds to stocks and real estate.

Remember the press releases that stated that Biden intended to hire 80K new IRS workers over the next 10 years? The IRS is predicted to lose 50K workers over the next 5 years due to retirements.

Most companies have refused to invest in employees and refuse to have sensible plans to reward employees for their allegiance. The easiest and most painless way for most employees to get the pay raise they deserve is to find another job. Most employees realize that they have options and are willing to take the right job rather than the first job.

And since spending habits usually don't change if you're making more money, most people have more money to spend and companies are willing to get their piece of that pie. Combine that with OPEC cutting production and the war in Ukraine, and we've now got relatively high inflation. The inflation is real. The fed rate hikes are artificial. We've needed a serious upward adjustment in wages for quite some time, at least until people stop pretending that government is the root of all evil and there's a place for a conversation about how much housing costs.

Anyway they need those younger generations to keep making more money so they can afford to pay absurd rents for the rest of their lives.