It’s going to be a BIG week for markets. Below is a short list of the key announcements worth watching. Expect massive volatility.
Microsoft Earnings - Tuesday
Google Earnings - Tuesday
Meta Earnings - Wednesday
Apple Earnings - Thursday
Amazon Earnings - Thursday
Fed IR Decision - Wednesday
Advanced GDP Estimate - Thursday
Pundits have been having a field day with what these events are likely to mean for markets. There are the predictors, eagerly placing bets on where the earnings will fall, what the interest rate decision will be, and even how Ethereum will be impacted. They’ll mostly be wrong. They are also debating whether the US is heading into recession, already there, or not going to get there at all.
There is also seemingly widespread consensus that the government has conveniently changed the definition of a recession overnight.
My first instinct was to buy into this idea, but I quickly had my doubts. After enough research, I have once again decided to jump on my horse and embark on a crusade to kill the FUD and fake news.
Let’s learn the truth.
Here’s the back story, with context.
Late last week, The White House published a blog titled, “How Do Economists Determine Whether the Economy Is in a Recession?” that discussed The National Bureau of Economic Research’s (NBER’s) official definition of a recession. The blog discussed what constitutes a recession and how recession is defined. I will include this definition below, because it is important. But I want to offer more context first.
Since 1974, it has generally been accepted that a recession is entered after two consecutive quarters of declining GDP. This is the most simplistic technical definition that students are taught in school and armchair economists use to make predictions.
Now back to the blog (you can read
HERE) that pissed everyone off last week. Here is how they defined a recession.
The NBER’s Business Cycle Dating Committee—the official recession scorekeeper—defines a recession as - “a significant decline in economic activity that is spread across the economy and that lasts more than a few months. The variables the committee typically tracks include real personal income minus government transfers, employment, various forms of real consumer spending, and industrial production.”
Let’s compare this definition to a definition I found in a 2009 blog written by an Assistant Director and Senior Economist in the IMF’s Research Department. You can read it
HERE.
The NBER’s Business Cycle Dating Committee defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators. A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough.”
So there you have it, folks. The goal posts have NOT moved. NBER has been using this definition for at least 13 years, likely longer.
I can understand where the anger and frustration are coming from. This blog was conveniently released alongside Janet Yellen’s statement that she “doesn’t see any sign that the US economy is in a broad recession.” Furthermore, the NBER isn’t particularly good at their job. When recessions are short-lived, the committee is known to announce them starting after they are already over. For the Great Recession, NBER declared the end over a year after it was actually finished. Their job is hard, they clearly aren’t perfect, and everyday people are upset.
I won’t bother with predictions, but it does seem likely that the very fact that the White House published these definitions and discussed second quarter GDP before the numbers were released was a massive tell. They’re likely prepping for "bad news.” Many of the tell-tale recession catalysts have already played out. We will likely have endless debate, even after the numbers are released, as to whether we are in a recession or not.
But the definition hasn’t changed… it just remains vague and open to interpretation.
Just how the government likes it.
And now I shall lay down my sword. I declare this short crusade complete.
