Out of curiosity, how reliable are all of the metrics we use for measuring economic health? For instance, how reliable is the unemployment rate when it is a highly political number with lots of incentives to misrepresent (ie the chronically unemployed are excluded from the count)? Beyond that, how much are these indicators just fudged or straight-up lied about?
Everybody is happy to agree with me when I say that China fudges their numbers, but when I say other countries are capable of the same thing they tell me I'm crazy. I am not an expert on China by any means, and I don't believe other countries report their economic health in the same way; but I also don't buy that everything the US and other western countries say is gospel.
There's a name for the phenomenon, Goodhart's Law [1]. Generally, once a metric is used for decision making, it no longer reflects the phenomenon that it is attempting to measure.
Making it much more complicated is the fact that methodologies vary from year to year, and are often created by averaging data from a number of different sources. I've become fairly convinced that almost all macroeconomic measures are so flawed that using them in almost any dimension (across time, between countries) is useless. It may be that everyone involved in creating the overall measures is acting in good faith, rather than some politically motivated conspiracy, but still in aggregate create data that does not reflect reality in a useful way.
The exceptions tend to be metrics that require skin in the game to shift -- the yield curve inversion or S&P500 index, for example, are fairly real, since shifting them would cost a ton of money.
The markets watch the BLS numbers like crazy and compare them to estimates from private sources that come from a wide range of methodologies. Frequently the big moves in the markets are not triggered by the bare numbers but from the difference between the expectation and the numbers.
If there was a systematic fudging of those numbers lots and lots of people would notice.
One difference is that in the US and other Western countries is that these metrics don’t only come from one state-authorized authority. Investment firms, news outlets, economists routinely check these metrics and offer their own. In China, someone saying that the government is wrong, won’t get much traction. Dissenting Chinese economists are actively censored.
While information freedom doesn’t mean the official metrics are accurate, lack of freedom is a warning sign and should be treated with extreme skepticism.
Also most of the important numbers that the average person cares about such as inflation or unemployment are collected in a very rigorous way that is hard for a government officials to modify without leaving a damning paper trail. Not to mention the vast majority of private measures match up with these numbers.
These measures are by no means perfect. The unemployment rate has significantly over estimated the health of the economy since the great recession, but this isn't due to a conspiracy. It's caused because it systematically under counts people who have dropped out of the labor force, or are under employed. (This is for the most popular unemployment rate number, there are much better employment numbers to use that don't suffer from this issue.)
>the chronically unemployed are excluded from the count
This is untrue. There are various measures of unemployment, each of which includes/excludes different factors. Believe it or not, some people actually use this data for work, and sometimes not including, say, people who aren't even looking for work, makes sense depending on what you're analyzing.
>Everybody is happy to agree with me when I say that China fudges their numbers, but when I say other countries are capable of the same thing they tell me I'm crazy
I know folks who work for StatsCan and the BLS. You should provide evidence before accusing hard-working people of corruption. There's nothing intellectual about pointing to random things and saying, "could be a conspiracy!" Yeah, anything could be.
There are rumors that the unemployment rate is now skewed by counting people with 3 jobs as “3 jobs”. They simply divide the total number of jobs by the total number of people to get the unemployment rate. This would explain the unusual growth in restaurant and hospitality jobs. I don’t know if this is true or not but any metric that becomes a target ceases to be a good metric.
You can look at different measures of US unemployment, the top line number I think is normally "those looking for jobs but unable to find them" but there are a number of other metrics as well.
This is the best reply. We really don't know, and only greater horizons provide greater certainty of a recession.
Further, we're now in a society where a third of the population lives in a perma-recession where they have not actually recovered from the previous one -- while another section of society lives in permanently good times -- so it is hard to gauge recession from looking around you.
People have been calling the next recession for more than 3 years, it'll be fun to return to this prediction when we actually do have a recession, as you think it's likely within 3 years.
By the way, a recession is technically 2 quarters of negative growth, so assuming we start from when we actually know we're in recession, it's a minimum of 6 months from now before we are in recession so ".390625 years" would be a definite no.
This is a really interesting metric but I'm going to argue that it doesn't say that much about our current situation given that our current unemployment numbers are highly skewed due to a strong shift towards low quality part time work and a large number of people opting out of the labor search (who are not considered unemployed in these statistics).
I could see an argument made that given that this is statistic is relative to itself and just tracks movement it shouldn't matter if things are different now than in the past but it feels to me like the nature of this metric is so different now than it was in the past that it's just not an apples to apples comparison.
You could use any of the BLS unemployment numbers in a metric line this to see if some of the others were better predictors historically (not sure why they didn’t document that).
If what you are saying is that we are in a historically unprecedented time you’ll note their metric predicted recessions that happened across a wide variety of historical regimes.
I do not have any real numbers, and this is just anecdotal, but in Slovenia (small EU country), a lot of our larger retailers have replaced some posters (basically ads) in their stores with "workers needed" posters, and some have literally advertised that they're looking for workers in their paper ads we get in the mail. Also a car repair shop literally had an radio ad that they're looking for repairmen.
It might be just a coincidence, but it's easy to get/change jobs at the moment, if you're actually willing to work.
No single metric is going to give a full picture. However, to my understanding work force participation has been going up and there's been upward pressure on wages at the lower end.
> The Great Recession officially ended in June of 2009
As a "millennial" who graduated in 2008, I seriously hate reading shit like this. Maybe it recovered for the Boomer's pension funds and 401k's, but it took many of my friends over a decade to find work equal to their qualifications. They're only JUST NOW starting to get payed what they deserve (PHDs, MBAs, and Masters degree holders).
No economic numbers are reliable due to reflexivity - "reliable numbers" become inputs for policy makers and market participants, which drive changes in the economy that affect the previously "reliable numbers".
George Soros wrote extensive literature on the topic. He called his fund (second best performing hedge fund in history) the Quantum Fund because, according to him, true nature of economic reality is unknowable to humans. As in it is genuinely impossible to know, regardless of the amount of efforts.
Example: mortgage credit decisions depend on people's earnings and collateral value. Problem? Both earnings (salaries) and the collateral value (home prices) depend on the amount of credit in the system.
The economy, being a subset of psychology/sociology, cannot be understood via normal science because the level of understanding is not independent from the actual rules at work. I.e. the more we understand the different-er we behave. Unlike atoms, which don't care what humans think and just go about their own business.
This analyst writes about that bubble and that it will burst since many years. What is the point? You simply cannot predict future exactly based on historical data. Times are different, technology is different, human behavior is changing, demography is changing, etc.
It baffles me how financial analysts can try to answer such a question by only focusing on the domestic economy. Economies are so interconnected, the next recession is likely to be a global recession. Alarm bells are currently ringing all over the world, but the U.S. is isolated to some extent due to its currency status and relatively stable markets.
It's like standing in a room on the top floor of the Titanic and measuring whether the boat is sinking by measuring the water level on the floor in your room. Meanwhile, if water is getting into the rooms below you...
"The indicator has both correctly signaled a recession 4–5 months following the beginning of the recession and has virtually never called a recession incorrectly since 1970.'
This is more like "how will we know when a recession has already started without waiting for a down GDP for two quarters." That's 6 months in. This signal lets you know 4-5 months in. Not exactly a leading indicator.
> This is more like "how will we know when a recession has already started without waiting for a down GDP for two quarters." That's 6 months in.
It's at least 6 months in: NBER recession dating even for recessions that include at least two down quarters (which, while a popular conception is not the official definition, though I don't think any two-quarter consecutive downturn has failed to be included within a declared recession) is often before the first down quarter in a consecutive pair. (E.g., the Great Recession is timed from the Q4 2007 peak, even though there was only one quarter of decline immediately following, then a dead-cat bounce quarter, then a four quarter consecutive decline. If you looked for a pair of down quarters, you'd detect the Great Recession a year after it started; 4-5 months moves that up a lot.)
Why does it have to be just a recession with rebound a few years later? I’d argue many are thinking too positive following 2008 where everything will go back to normal and prices will rally to all time highs. The US economy almost blew up into a full blown depression in 2008. The Fed swooped in to save the day. Can the Fed do that again indefinitely with not only US but potential problems worldwide?
The global economy is reaching uncharted territory now with the amount of debt and negative interest rates.
Maybe a depression like 1930’s are a relic of the past once we decoupled from the gold standard. Central banks today have full power to devalue currency indefinitely in order to maintain the financial status quo.
They've probably got more tools, as they've said that the foreign experience puts negative interest rates on the table as a realistic tool.
But, even if they can't, Congress could, in principal, step in with serious fiscal stimulus [0], which is less limited than the monetary tools available to the Fed. But they've been unreliable in the last few recessions, leaving the Fed holding the bag.
Interesting and makes sense for someone someone like me who's a dummy for macroeconomics. Unemployed people can't afford to spend too much, thus businesses revenue decreases, they lay off more people and it becomes a negative feedback loop.
I've also seen this VOX documentary about the "yield curve" which also famous for predicting recessions.
in one of Buckminster Fuller's books (Critical Path IIRC) he recalls an indicator of the Great Depression being half-finished housing developments - rows and rows of houses, covered in tarpaulin, plumbing exposed like a skeleton, abandoned. I recalled this vivid description later during the mortgage crisis of 2008.
Maybe I'm just too cynical, but we know that it'll happen just before the next Presidential election. If the party in power can't get enough buy-in from enough influential people.
Typically a recession is defined by having at least 2 quarters of decreased GDP growth, so it is often a lagging indicator. By the time we definitively know we are in a recession...we've already been in it for 6 months. That is to say that I'm not sure how good of an indicator a rolling average of unemployment is, especially in a gig-economy sort of market. But I agree, using indicators to predict a recession is basically an educated guess, with little emphasis on the educated part.
People have been calling for a recession/big market correction since around 2012. At some point an analyst will be right and then they’ll hold the throne of “this analyst predicted the last recession... hear what they think now” until the cycle repeats itself again.
Those that have been around a while know this whole story plays out on a loop over and over and over :-)
[+] [-] MegaButts|6 years ago|reply
Everybody is happy to agree with me when I say that China fudges their numbers, but when I say other countries are capable of the same thing they tell me I'm crazy. I am not an expert on China by any means, and I don't believe other countries report their economic health in the same way; but I also don't buy that everything the US and other western countries say is gospel.
[+] [-] andrewla|6 years ago|reply
Making it much more complicated is the fact that methodologies vary from year to year, and are often created by averaging data from a number of different sources. I've become fairly convinced that almost all macroeconomic measures are so flawed that using them in almost any dimension (across time, between countries) is useless. It may be that everyone involved in creating the overall measures is acting in good faith, rather than some politically motivated conspiracy, but still in aggregate create data that does not reflect reality in a useful way.
The exceptions tend to be metrics that require skin in the game to shift -- the yield curve inversion or S&P500 index, for example, are fairly real, since shifting them would cost a ton of money.
[1] https://en.wikipedia.org/wiki/Goodhart%27s_law
[+] [-] nickpinkston|6 years ago|reply
I think you'll find the Labor Force Partcipation Rate gives a more accurate assessment of what you're looking for.
"Make-Believe America: Why the US Unemployment Rate Doesn’t Indicate Economic Recovery"
https://www.foreignpolicyjournal.com/2018/03/08/make-believe...
[+] [-] kasey_junk|6 years ago|reply
If there was a systematic fudging of those numbers lots and lots of people would notice.
[+] [-] amayne|6 years ago|reply
While information freedom doesn’t mean the official metrics are accurate, lack of freedom is a warning sign and should be treated with extreme skepticism.
[+] [-] JamesBarney|6 years ago|reply
Also most of the important numbers that the average person cares about such as inflation or unemployment are collected in a very rigorous way that is hard for a government officials to modify without leaving a damning paper trail. Not to mention the vast majority of private measures match up with these numbers.
These measures are by no means perfect. The unemployment rate has significantly over estimated the health of the economy since the great recession, but this isn't due to a conspiracy. It's caused because it systematically under counts people who have dropped out of the labor force, or are under employed. (This is for the most popular unemployment rate number, there are much better employment numbers to use that don't suffer from this issue.)
[+] [-] navigatesol|6 years ago|reply
This is untrue. There are various measures of unemployment, each of which includes/excludes different factors. Believe it or not, some people actually use this data for work, and sometimes not including, say, people who aren't even looking for work, makes sense depending on what you're analyzing.
>Everybody is happy to agree with me when I say that China fudges their numbers, but when I say other countries are capable of the same thing they tell me I'm crazy
I know folks who work for StatsCan and the BLS. You should provide evidence before accusing hard-working people of corruption. There's nothing intellectual about pointing to random things and saying, "could be a conspiracy!" Yeah, anything could be.
[+] [-] unknown|6 years ago|reply
[deleted]
[+] [-] webninja|6 years ago|reply
[+] [-] foota|6 years ago|reply
[+] [-] bhouston|6 years ago|reply
[+] [-] SeeDave|6 years ago|reply
100 years? Yes!!!!
50 years? Yes!!!
25 years? Yes!!
12.5 years? Yes!
6.25 years? Yes
3.125 years? Yes?
1.5625 years? Maybe
.78125 years? Maybe?
.390625 years? No?
0.1953125 years? No
0.09765625 years? No!
[+] [-] TuringNYC|6 years ago|reply
Further, we're now in a society where a third of the population lives in a perma-recession where they have not actually recovered from the previous one -- while another section of society lives in permanently good times -- so it is hard to gauge recession from looking around you.
[+] [-] benj111|6 years ago|reply
By the way, a recession is technically 2 quarters of negative growth, so assuming we start from when we actually know we're in recession, it's a minimum of 6 months from now before we are in recession so ".390625 years" would be a definite no.
[+] [-] tinktank|6 years ago|reply
[+] [-] anm89|6 years ago|reply
I could see an argument made that given that this is statistic is relative to itself and just tracks movement it shouldn't matter if things are different now than in the past but it feels to me like the nature of this metric is so different now than it was in the past that it's just not an apples to apples comparison.
[+] [-] kasey_junk|6 years ago|reply
If what you are saying is that we are in a historically unprecedented time you’ll note their metric predicted recessions that happened across a wide variety of historical regimes.
[+] [-] testis321|6 years ago|reply
It might be just a coincidence, but it's easy to get/change jobs at the moment, if you're actually willing to work.
[+] [-] Consultant32452|6 years ago|reply
[+] [-] nradov|6 years ago|reply
[+] [-] rubicon33|6 years ago|reply
As a "millennial" who graduated in 2008, I seriously hate reading shit like this. Maybe it recovered for the Boomer's pension funds and 401k's, but it took many of my friends over a decade to find work equal to their qualifications. They're only JUST NOW starting to get payed what they deserve (PHDs, MBAs, and Masters degree holders).
[+] [-] H8crilA|6 years ago|reply
George Soros wrote extensive literature on the topic. He called his fund (second best performing hedge fund in history) the Quantum Fund because, according to him, true nature of economic reality is unknowable to humans. As in it is genuinely impossible to know, regardless of the amount of efforts.
Example: mortgage credit decisions depend on people's earnings and collateral value. Problem? Both earnings (salaries) and the collateral value (home prices) depend on the amount of credit in the system.
The economy, being a subset of psychology/sociology, cannot be understood via normal science because the level of understanding is not independent from the actual rules at work. I.e. the more we understand the different-er we behave. Unlike atoms, which don't care what humans think and just go about their own business.
[+] [-] outside1234|6 years ago|reply
Also, concerningly, the real estate market is just as leveraged and bubbled as then as well.
https://www.forbes.com/sites/jessecolombo/2019/06/30/current...
[+] [-] novaRom|6 years ago|reply
[+] [-] joeyrideout|6 years ago|reply
It's like standing in a room on the top floor of the Titanic and measuring whether the boat is sinking by measuring the water level on the floor in your room. Meanwhile, if water is getting into the rooms below you...
[+] [-] novaRom|6 years ago|reply
This is not true. Please be more specific with 'all over the world' statement. Do you speak about 5% or 7% of world economy?
[+] [-] Animats|6 years ago|reply
This is more like "how will we know when a recession has already started without waiting for a down GDP for two quarters." That's 6 months in. This signal lets you know 4-5 months in. Not exactly a leading indicator.
[+] [-] dragonwriter|6 years ago|reply
It's at least 6 months in: NBER recession dating even for recessions that include at least two down quarters (which, while a popular conception is not the official definition, though I don't think any two-quarter consecutive downturn has failed to be included within a declared recession) is often before the first down quarter in a consecutive pair. (E.g., the Great Recession is timed from the Q4 2007 peak, even though there was only one quarter of decline immediately following, then a dead-cat bounce quarter, then a four quarter consecutive decline. If you looked for a pair of down quarters, you'd detect the Great Recession a year after it started; 4-5 months moves that up a lot.)
[+] [-] the_watcher|6 years ago|reply
"virtually never" also sounds like weasel words considering the total number of recessions.
[+] [-] gzu|6 years ago|reply
The global economy is reaching uncharted territory now with the amount of debt and negative interest rates.
Maybe a depression like 1930’s are a relic of the past once we decoupled from the gold standard. Central banks today have full power to devalue currency indefinitely in order to maintain the financial status quo.
[+] [-] dragonwriter|6 years ago|reply
They've probably got more tools, as they've said that the foreign experience puts negative interest rates on the table as a realistic tool.
But, even if they can't, Congress could, in principal, step in with serious fiscal stimulus [0], which is less limited than the monetary tools available to the Fed. But they've been unreliable in the last few recessions, leaving the Fed holding the bag.
[+] [-] jethro_tell|6 years ago|reply
I mean they don't have much to give do they? Unless we're doing negative interest rates this time.
[+] [-] iamwil|6 years ago|reply
It just shows the inverted yield curve, pulling down data from the US treasury everyday, and subtracting the 1 year from the 10 year interest rate.
[+] [-] nodesocket|6 years ago|reply
[+] [-] bhouston|6 years ago|reply
[+] [-] Havoc|6 years ago|reply
Anyone with any real predictive power over that question had a license to print money
[+] [-] ameister14|6 years ago|reply
[+] [-] kasey_junk|6 years ago|reply
[+] [-] diveloper|6 years ago|reply
[+] [-] tiborsaas|6 years ago|reply
I've also seen this VOX documentary about the "yield curve" which also famous for predicting recessions.
https://www.youtube.com/watch?v=xiiHjrewXNI
[+] [-] rossdavidh|6 years ago|reply
[+] [-] nessunodoro|6 years ago|reply
[+] [-] brewdad|6 years ago|reply
[+] [-] mothsonasloth|6 years ago|reply
"Recovery is when Jimmy Carter loses his job"
[+] [-] mirimir|6 years ago|reply
[+] [-] arkadiyt|6 years ago|reply
Prior 12 months lowest unemployment rate: 3.6% (in April & May 2019).
Prior 3 months average (June/July/August 2019): 3.7%.
So according to this metric we are not in a recession.
[1]: https://www.bls.gov/web/empsit/cpseea03.htm
[+] [-] trufflebutter|6 years ago|reply
[+] [-] 11thEarlOfMar|6 years ago|reply
https://www.bls.gov/web/empsit/cps_charts.pdf
For example, slide 15, percentage of the unemployed deemed as long term unemployed declined from 45% to 20% from 2012 - 2019.
[+] [-] code4tee|6 years ago|reply
Those that have been around a while know this whole story plays out on a loop over and over and over :-)
[+] [-] swsieber|6 years ago|reply