Another guest post from MG Dungan who went from Wharton to Wall St. to real estate to Blown Mortgage.
Now here?s a lagging indicator for you: at least a year after the fact, the recession is now known to have began in December 2007. A depression comes next, but since there has been only one in the US, there isn?t a generally-accepted definition. So, get out your calculators and old economic textbooks and get ready for a few years of debate.
Employment as a Metric
During the Depression, unemployment was officially 25% and wages (for those who still had jobs) fell 42%.
?In studying the Great Depression, some scholars “mis-measure” employment levels by disregarding jobs the government created by the mid-1930s to spark a recovery. This suggests that for them, a ‘depression’ is a period when the private sector contracts and is unresponsive to fiscal stimulus, irrespective of how activist and effective the public sector may be,” according to James Galbraith, an economist at UT’s LBJ School of Public Affairs. That seems to be where we are right now. Something else not taken into account is the quality of those surviving jobs. Hours, then days were cut to the point where a job could be one day a week per employee, with no benefits, of course.
“Given how deeply poisoned the financial wells are, it’s distinctly possible that even a large fiscal stimulus will not reignite a credit-driven expansion, so that the public sector will have to take the economic lead for three to five years or longer,” Galbraith said. I think that?s a given at this point; Obama seems to think so too.
Employment 2008
According to the Bureau of Labor Statistics, the unemployment rate is 6.7% if you count some of the people. It?s 12.5% if you count more of them. If you were able to count all the unemployed, it would undoubtedly be a lot, a real lot, more than 12.5%.
Measures of Economic Activity
GDP
Another frequently used benchmark to determine economic health or the lack of it is gross domestic product (GDP), the most common measure of a country’s overall economic output. At the depth of the depression, total US economic output fell to $55 billion from $103 billion and world trade plummeted 65% measured in US$. Now, a GDP decline of 10% is sometimes cited as the key marker of a depression, albeit a lagging indicator.
Global Output
The Baltic Dry Index (BDI) is one of the best leading indicators of future economic activity since it measures global raw material and infrastructure demand; it?s a fav of ours too. December?s result (shown below) is also a reflection of the lack of availability of financing for international trade, usually Letters of Credit between banks. When you hear that credit has dried up, at serious issue is a lot more than credit cards and HELOCs.
Get a load of the cliff dive the BDI has taken over the last few months and the lack of a dead-cat bounce since November. Raw materials are not being delivered and finished goods are not being produced.
Last 3 posts by Morgan
- Subprime Bananas - June 28th, 2009
- Roubini: No confidence in government exit strategy - June 24th, 2009
- Goldman bonuses largest in firm's 140-year history - June 21st, 2009
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I think that all the capitol hill folk need to consider some OTHER ways to grow and stimulate our economy
I think that all the capitol hill folk need to consider some OTHER ways to grow and stimulate our economy