There's been some discussion of how the GDP estimates for 2009Q3 might be revised downward in light of the September trade release [1]. e-Forecasting has presented its latest estimates up to October, and Macroeconomic Advisers through September. Macroeconomic Advisers writes:

...The increase in September was more than accounted for by a large positive contribution from nonfarm inventories (slower inventory paring in September than August). The level of monthly GDP in September was 0.9% above the third-quarter average at an annual rate. Average monthly increases of 0.3% per month during the fourth quarter support our latest tracking forecast of 3.3% growth in the fourth quarter.

The series are plotted below.

Figure 1: Real GDP in billions Ch.2005$, SAAR (blue bars), Macroeconomic Advisers 10/17 release (green), and e-forecasting 11/19 release (red). NBER defined recession dates shaded gray, assuming end occurs at 2009M06. Source: BEA 2009Q3 advance release, ...

Here are the latest reads on monthly GDP:

Figure 1: Real GDP in billions Ch.2005$, SAAR (blue bars), Macroeconomic Advisers 8/17 release (green), and e-forecasting 8/19 release (red). NBER defined recession dates shaded gray, assuming end occurs at 2009M06. Source: BEA 2009Q2 advance release, Macroeconomic Advisers, e-forecasting, NBER.

Macroeconomic Advisers writes:

... The level of monthly GDP in June was 0.2% below the second-quarter average at an annual rate. Average monthly increases of 0.4% per month would support our latest tracking forecast of a 2.8% increase in GDP in the third quarter.

e-forecasting writes:

Following a decline of 3.2 percent in June, the real-time monthly GDP, expressed at seasonally adjusted annual rates in chained 2005 prices, increased 6.3 percent in July to $12,938.4 billion.

A "W" Recession?

Martin Feldstein has recently raised the possibility that we might experience a relapse into recession in 2010 (a perfect symmetrical W), with the next dip in 2010. In my view, this means (1) we should have opted for a bigger and better composed stimulus package, and (2) the timing of expenditures in the stimulus package might not be as problematic as many commentators have indicated.

"I think we"re going to see a temporary substantial improvement," Feldstein, the former head of the National Bureau of Economic Research and a Reagan administration adviser, said today in an interview on Bloomberg Radio. "I emphasize the words temporary and substantial."

Feldstein -- a member of the private panel that dates the start of recessions and recoveries -- suggested the economy will contract into next year, and that the pattern of economic turnaround will be more of a seesaw than what he

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The advance release for 2009Q1 GDP will come out on April 29. Until then, we have some readings from the monthly GDP nowcasts, two of which were released on April 15. e-Forecasting identifies a 9.6% decline in first quarter GDP. Macroeconomic Advisers (whose monthly estimates only extend to February) writes "Our latest tracking estimate of a 5.1% decline in GDP in the first quarter includes a 1.2% decline in monthly GDP in March, reflecting a partial reversal in net exports and weakness in PCE and inventory investment." A lot hinges, then, on what happens to net exports.

Today, the Chicago Fed released the Chicago Fed National Activity Index (CFNAI). The CFNAI is based upon the common factor approach to combining the information in 85 series, as laid out by Stock and Watson (1999). Overlaying the CFNA level against the m/m annualized growth rates of the

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Just a quick post to highlight the OECD's recent forecast [0] for the US (-7.2% SAAR decline in 2009Q1), and e-forecasting's latest take (6.8% SAAR decline in 2009M03).

Figure 1: Real GDP from BEA (blue bars), and Macroeconomic Advisers 3/13 (red), e-forecasting 4/3 (blue). Tan shaded area indicates OECD 3/31 forecast for 2009Q1. Source: BEA, GDP release of 26 March 2009; Macroeconomic Advisers [xls], e-forecasting, OECD, and NBER.

Note that forecasted GDP (in the tan shaded area) is above the level implied by e-forecasting. E-forecasting's estimate is that GDP will be down by 9.9% (SAAR) in 2009Q1. If this more dire forecast proves accurate (Deutsche Bank predicts -8.0% SAAR), then -- as Brad Delong likes to say -- we'll need a bigger stimulus package.

See also Calculated Risk's discussion of the employment report: [1], [2], [3].

Side note: for those wanting to

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Here’s a compilation of e-forecasting’s January GDP estimate, Macroeconomic Adviser’s December GDP estimate and forecast for 2009Q1. E-forecasting’s estimate is that January real GDP was declining at an 11.8% at annual rates.

Figure 1: GDP (light blue bars), GDP from e-forecasting, 2/20 (blue), and from Macroeconomic Advisers 2/13 (red); Macroeconomic Advisers’ forecast for 2009Q1 (red line with *), in Ch.2000$ SAAR. NBER defined recession dates shaded gray (assuming recession has not ended by 2009M03). Source: BEA, GDP release of 30 January, e-forecasting 2/20 and Macroeconomic Advisers [xls] 2/13 release.

Clearly, in order to hit the mean WSJ forecast of -4.6% SAAR growth (see discussion here), the rate of m/m decline must decelerate. As Macroeconomic Advisers notes:

…Our latest tracking forecast of a 4.6% annualized decline of GDP in the first quarter requires only 0.2% declines per month during the first quarter. …

The Macroeconomic Advisers forecast available

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Looks pretty bad to me -- especially after taking into account downward revisions for December. Not too good on the output side either.

Figure 1: Nonfarm payroll employment, seasonally adjusted, various releases. NBER defined recession dates shaded gray (assuming recession has not ended by 2009M01). Source: BLS, employment situation, various releases, via St. Louis Fed FRED II.

Looking at hours worked provides a slightly different perspective on the change in the employment situation (not necessarily a prettier picture, though).

Figure 3: Log Nonfarm payroll aggregate weekly hours (blue), and Log Nonfarm payroll employment (red), seasonally adjusted, normalized to 0 in 2007M12. NBER defined recession dates shaded gray (assuming recession has not ended by 2009M01). Source: BLS, employment situation, December release, via St. Louis Fed FRED II, and author's calculations.

We also now have a first (unofficial) reading on output in the new year.

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High frequency estimates are falling, while consensus forecasts are for a turnaround in 2009H2. First, consider two estimates of GDP released today.

Figure 1: GDP (light blue bars), GDP from e-forecasting, 12/16 (blue), and from Macroeconomic Advisers 12/16 (red) in Ch.2000$, SAAR. NBER defined recession dates shaded gray (assuming recession has not ended by 2008M12). Source: BEA, GDP release of 25 November, e-forecasting 12/16 and Macroeconomic Advisers [xls] 12/16 release.

The WSJ forecast consensus suggests substantial declines in output continuing through the second quarter of 2008.

Figure 2: Log real GDP, from 25 Nov 08 preliminary release (blue), potential GDP (black), WSJ mean forecast from November survey (red), from December survey (green). Source: BEA NIPA releases [link], CBO estimates of 9 Sep 08 [xls], WSJ survey of forecasters from October and November [link].

Notice that the trajectory has shifted downward since

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Rather than engage in long commentary, I thought a set of pictures would be sufficient to convey the deteriorating macroeconomic situation, at least as reflected in the labor market.

First, the decline from peak in nonfarm payroll employment at 2007M12 (1.911 million), and how revisions have continued to be in a negative direction. Whereas in the past, commentators could say that the job loss figures were not consistent with recession, I think that is no longer a plausible assertion.

Figure 1: Nonfarm payroll employment, seasonally adjusted, various releases. NBER defined recession dates shaded gray (assuming recession has not ended by 2008M12). Bloomberg consensus for November in dark blue square. Source: BLS, employment situation, various releases, via St. Louis Fed FRED II, Bloomberg.

Second, note that the decline in hours of employment has been much more drastic than the decline in employment (2.9% vs. 1.4%, in log terms).

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The latest employment release was stunning, insofar as the NFP employment figure was far below consensus [0]. Net job loss was 240K, rather than 200K; in addition, September job loss was revised upward by 125K. In addtion to Jim's assessment, some additional reaction is summarized here. The acceleration in net job loss is depicted in Figure 1.

Figure 1: Nonfarm payroll employment, seasonally adjusted, various releases. Source: BLS, employment situation, various releases.

Note that Figure 1 highlights, by virtue of plotting the previous vintages of employment releases, the constant downward revision of payroll employment figures. While Dash of Insight's Jeff Miller has pointed that these revisions are small relative to the benchmark revisions will come our way, the latest revisions do seem to be getting bigger.

Justin Fox has correctly pointed out that quantitatively, net job loss in September and October is quite small, at 0.4%.

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