Effective Recession First In Japan?

For a lot of people, a recession is two consecutive quarters of negative GDP. This is called the technical definition in the mainstream and financial media. While this specific pattern can indicate a change in the business cycle, it’s really only one narrow case. Recessions are not just tied to GDP.

In the US, the Economists who make the determination (the NBER) will tell you recessions aren’t always so straightforward. Everyone knew about the second half of the Great “Recession” because there wasn’t a data series, indication, or market price that wasn’t plummeting.

The first half, though? It wasn’t until December 2008, more than two months after Lehman, that the NBER finally got around to “declaring” the United States in recession. In the annals of obviousness, even the empty suits at the FOMC took comfort in the NBER’s misstep; they didn’t feel quite so alone in botching their view of the economy that year.

In 2001, a US recession was declared even though GDP never did decline in two straight quarters. According to the BEA’s latest numbers, domestic output fell in Q1 2001, rebounded in Q2 (by more than 2.3%), and then fell again in Q3. This isn’t actually unusual, as the NBER’s Business Cycle Dating Committee admits:

In both recessions and expansions, brief reversals in economic activity may occur – a recession may include a short period of expansion followed by further decline.

Balance of probabilities, though, if GDP is only positive intermittently chances are much more so on the side of recession. An actual expansion, or boom, is one where weak perhaps negative quarters are not excluded but very few and far between. That’s what a boom is, consistent, sustained high growth. The GDP numbers should match.

Which brings us to the intersection of Japan and Euro$ #4. The country’s main statistical body will report preliminary estimates for Q1 2019 real GDP next week. Most expect the economy will have contracted (consensus -0.2% Q/Q) again last quarter. If it does, this will mean three out of the last five sporting minus signs.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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