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Kudlow’s Money Politics

Larry Kudlow’s daily web log of matters political and financial.

Recession? What Recession?



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U.S. News & World Report’s “Jimmy P” Pethokoukis and economist Jerry Bowyer — both regular contributors to Kudlow & Company — deliver two amusing takes on today’s GDP number and the muddled response from the economic punditocracy. Incidentally, take a look at the Intrade pay-to-play prediction market’s collapsing recession odds: They plummeted 20 points this morning. Talk about falling off a cliff.

Dude, Where’s My Recession?
April 30, 2008 09:51 AM ET
James Pethokoukis

Out: Recession. In: Expansion. That’s my quick take on today’s first-quarter gross domestic product number, which showed that the economy grew 0.6 percent in the first quarter. Now that’s not a robust number by any means, but it’s not so bad given all the worry out there that the economy is headed off a cliff. Before you declare a recession, as many economic pundits have, shouldn’t the economy, well, actually recess a bit — if only for a quarter?

Remember, the shorthand rule for declaring a recession is back-to-back quarters of negative growth. The semiofficial recession judge, the National Bureau of Economic Research, has a more complex formula, but I am not sure it has ever declared a recession when the economy never actually shrank. And consider this: The Intrade online betting market now says there is a meager 25 percent chance of a recession — using the negative-back-to-back-quarters definition — in 2008.

Plus, don’t forget that there’s a lag before all that monetary stimulus from the Fed kicks in. (It’s not too late to do nothing today, Bernanke!) Who knows — those rebate checks might even help a bit, though we’re probably not getting much bang for the nearly $200 billion we’re spending.

As a movie buff, I keep looking for the right cinematic analogy for the American economy. Try this one: It’s like the Terminator. Not the Schwarzenegger one — the other one, the Terminator from the second film. You could empty a shotgun — or in this case, an imploding housing market, credit crunch, and high oil prices — into that morphing metal dude, and before you know it, the thing’s all healed and chasing you again.

* * * * * * * * * * * * * * * * * *

From: Jerry Bowyer
Sent: Wednesday, April 30, 2008 11:09 AM
Subject: RE: We Are In a Recession

Okay, so here we are again. Another quarter and another plus sign. The economy grew every quarter last year and, so far, it’s continued to grow this year. The pessimistic-financial-pundit-industrial complex suffers another quarter of model-crushing data. Will they change their models? Don’t count on it. Fear sells, it sells newsletters; it sells bookings; it sells speaking gigs.

Today, brace yourself for the tribe of Yesbuts.

Yes, but the postive GDP is from inventory adjustments.

Sure it is. Shouldn’t inventory be counted in GDP?

Yes, but it’s also from government expenditures.

Shouldn’t government spending be counted in GDP. Especially for those Yesbuts on the left…it seems that you see government expenditures as being a good thing, except when they boost growth.

Yes, but Gross Domestic Income differs a little.

GDI is a fine statistic, which will be rediscovered today in a desperate search for bad news. Even as I write, financial pundits are dusting off their college Macroeconomics textbooks and rifling through pages trying to relearn how GDI is calculated. Let me save you the trouble. It’s made up of personal income, plus business profit, plus sole proprietor income. The business profit is domestic only, hence the D in GDI. If you want to capture the productive power of US business overseas, look at the long-neglected GNP, which has been doing quite well lately. Though, it’s not out for Q1 yet.

Yes, but durable goods were down in Q1.

Indeed they were, which means that the rest of the economy was strong enough to pull us into positive territory. On top of that durable goods were down, not because of economic weakness but because some pro-business investment tax cuts expired in December and were not reinstated until halfway through the first quarter. It wasn’t recession; it was a temporary tax code distortion.

For the perma-pessimists who were flat out 100% sure that ‘we’re already in a recession, the debate is about how long and how deep’ — back to the spreadsheets.

For the rest of you — have a nice day.

Jerry Bowyer
Chief Economist Benchmark Financial


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