1. summitV I E W capital
December 2008. There seems to be plenty
of economists willing to state the recession
ended in June/July of 2009, but still no
announcement from the NBER. This is not
summitVIEW
an ominous sign for continued economic
turmoil by itself. The NBER announcement
typically lags the actual event by around a
year. The end of the 2001 recession was not
declared until more than a year and a half
The NBER examines different economy-
wide measures of economic activity to
1
determine turning points in the business
cycle. According to their paper [1] declaring
the trough (and hence beginning of
Is that two scoops or just
Sept
economic expansion) of the 2001 recession:
one big scoop? “In determining whether a recession
has occurred and in identifying the
2010
approximate dates of the peak and the
trough, the committee therefore places
A Double-­Dip Recession in considerable weight on the estimates
the United States? of real GDP issued by the Bureau of
Economic Analysis of the US Department
With each passing week of August, there are more of Commerce. The traditional role of
headlines stacking up that indicate the US Economic the committee is to maintain a monthly
Recovery isn’t quite as rosy as was being projected chronology, however, and the BEA’s
just a few short months ago. Rising jobless claims, real GDP estimates are only available
awful housing numbers, and slowing Leading quarterly. For this reason the committee
Economic Indicator Indices have all been part of the refers to a variety of monthly indicators
picture. With these disappointing economic prints choose the exact months of peaks and
comes a growing chorus of voices in the Mainstream troughs.
Media questioning whether the US is headed back It places particular emphasis on two
into recession. It likely is not. What is the bad news monthly measures of activity across the
answer? It is likely that the US never emerged from entire economy: (1) personal income less
transfer payments, in real terms and (2)
null and void. employment. “
The most glaring evidence supporting this According to a paper released this August
depressing claim is the fact that the National Bureau by the Richmond Federal Reserve[2], one
of the reasons the NBER was slower to
declare an end for the 2001 downturn was
the poor performance of employment in
really matters is “conditions on the ground,” there that recovery. The paper also suggests
that the committee “waited until many
yet to be declared. broad indicators had surpassed their pre-
recession peaks, which has not happened
in this recession for any of the series
is that the NBER is just slow. It did not declare the examined here.”
December 2007 start of the recent recession until
see disclaimer on last page
Pay attention to that last sentence,
because it matters.

2. capital
It is worth
examining some of
the same data series
summitVIEW
the NBER uses to
get a clearer picture
of when they might
declare an end to
the recession, and
what date that
declaration will
pinpoint. GDP is
cited as the most
important factor
2
in the NBER
methodology, so
it is a good place
Sept 2010
to start. The BEA
has been reporting
positive annualized
growth rates in
GDP each quarter
since Q3 2009. The
problem is, the
growth hasn’t been
big enough to bring
the US economy
back up to the same
size it was when
the recession hit.
Examining the
dollar level of GDP, in February, 2008 at 9,736.0, fell to a cycle low
the US Economy topped out at 13,363.5 billion of 9,091.2 in October, 2009 and was at 9,217.8
in Q4 2007, and declined to a low of 12,810.0 in the most recent report of June, 2010.[4] This is
billion in Q2 2009, when the steady, positive more than 5% off the high, and not showing any
meaningful sign of growth, although the near term
back to 13,216.5 billion for Q2 2010, which is still
below the peak. [3] are similarly uninspiring. The unemployment
is scheduled to be released on August 27th, and rate in December 2007 as the economy headed
most expectations are for a further downward into the downturn was 5.0% (after creeping up
from an average closer to 4.6% for the year). As of
July 2010, it stood at 9.5% after reaching a high of
in the recent volatile trading days. (Update: 2nd 10.1% in October 2008.[5] Unemployment may be
Quarter 2010 growth revised from 2.4% down to one of the more troubling statistics the NBER will
1.6%). confront when examining the current economic
climate. While it has leveled off, it certainly hasn’t
What story do the Personal Income statistics shown any sign of improving, and with no job
tell? Judging from straight personal income, growth, there really can’t be any meaningful
the USA is back on track to prosperity, with growth in personal income. Following the trend
the highest personal income reported to date of a “jobless recovery” that was set by the 2001
in the 2nd quarter 2010 report. However, the recession, the awful unemployment numbers will
relevant statistic to the NBER committee is likely persist for a long time. There is talk of a
Personal Income LESS Transfer Payments. structural shift in the US economy in which high
Transfer payments are things like social security unemployment becomes normal.
hands without a reciprocal exchange of goods So, with all three top measures of economic health
and services. This monthly measure peaked used by the NBER below their peaks of 2007, will

3. there be any forthcoming announcement from
Quotes:
the committee? If the committee holds off on
any announcements until these measure improve Billions spent on housing
to pre-recession levels, it is highly unlikely we
will see any proclamation from them this year,
tax breaks accomplish
little, experts say
summitVIEW
and maybe not even next year. This is not even
accounting for other measures typically taken as
indicators for the broader economy: Consumer The U.S. government spent $230 billion last year
Sentiment Survey, ISM Manufacturer’s Index, to support home ownership but accomplished
Small Business Optimism Survey, etc. A hint: almost nothing beyond putting money into the
none of them look very rosy right now, not pocket of the rich, experts told a conference on
compared to pre-recession levels, and certainly housing policy. The rate of home ownership
not compared to other periods of economic in the U.S. is about the same as in Canada and
recovery. less than that of Australia, Britain, Ireland and
Spain, which all offer little in the way of home
3
So what? Who really cares what the NBER ownership tax breaks. The Urban Institute said
committee says if all they do is apply labels to tax incentives for U.S. mortgage holders are
what actually happens in the economy? It is
Sept 2010
worth $5,459 a year to people making more than
more important for individuals to understand $250,000 but only $91 a year to those earning less
the basics of what is happening and make than $40,000.
investment decisions accordingly. Instead
of breathlessly speculating on the eventual USA TODAY (18 Aug.)
announcement, it is useful to understand that
the economy certainly does not appear to be in
a stable recovery, and is likely to face further
Bankruptcies in the U.S.
reach the highest level
(and thus all important Consumer Consumption)
and GDP are all sluggish. since 2005
With so many areas of the economy never really
increased to their highest level since the
Housing), and the rest of the economy limping last quarter of 2005. Business and personal
along with massive government stimulus bankruptcies spiked then because a law revision
and inventory restocking, it would be more that tightens the procedure was about to come
accurate to view the downturn as one, drawn
out recession. Even the NBER itself does not the looser process, according to The Economist.
believe in the concept of the double dip. It will
either classify as two discrete recessions, or one
long recession. Given the tepid recovery and ended June 30 compared with the same period a
persistent weakness in key economic sectors, one year earlier.
long recession seems much more accurate.
The Economist (18 Aug.)
[1] http://www.nber.org/cycles/july2003/recessions.pdf
A Broken Record
[2] http://www.richmondfed.org/publications/research/economic_ This is going to sound like a broken record but
brief/2010/pdf/eb_10-08.pdf it took a decade of parabolic credit growth to
[3] Figures are in Chained 2005 dollars, and are from the Bureau of Economic get the U.S. economy into this deleveraging
Analysis website: http://www.bea.gov/
towards bringing household debt into historical
[4] Figures are in Chained 2005 dollars,and are from the St. Louis Federal realignment with the level of assets and income to
Reserve website: http://research.stlouisfed.org/fred2/categories/110 support the prevailing level of liabilities. We are
talking about $6 trillion of excess debt that has to
[5] From the St. Louis Fed: http://research.stlouisfed.org/fred2/data/ be extinguished, either by paying it down or by
UNRATE.txt walking away from it (or having it socialized).
David Rosenberg, Gluskin She & Associates, Inc.,
Disclaimer: All material presented herein is believed to be reliable but we cannot attest to its
August 26, 2010
accuracy. Neither the information nor any opinion expressed constitutes a solicitation by us for the
purchase or sale of any securities.
www.summitcreekcapital.com