It’s been tempting to think that maybe, just maybe, the U.S. could avoid recession. Perhaps some divine financial power might intervene and pull the economic coals out of the fire. But such hope, however remote in the first place, should now be packaged away in the file cabinet that holds all forlorn desires.
The recession, by our reading, is confirmed. That will come as old news to readers of these digital pages and anyone else who follows the economic news. Any number of warning signs have been flashing for months, some of which we’ve discussed. Economic models, by contrast, often dispense robust signals with lags. That’s in part due to the fact that economic data is released with a lag. In addition, economic measurements that digest multiple data series are prone to false signals and a fair amount of volatility in the short term. The practical solution is to be patient and wait for a relatively high degree of confidence that the model’s warning is more than statistical noise. As such, our own home-grown index has just issued what we think is a valid signal after we updated the last bit of selected February data (personal spending and income). Yes, we’ve suspected contraction all along, but now we’re that much more confident.
Granted, absolute clarity in the dismal science is forever elusive–except in hindsight, when all the data’s been revised and economists have scrubbed and rescrubbed the numbers so that the only remaining debate centers on what size font to use for writing the definitive history. That day is still a ways off. Meanwhile, back here in real-time economics, replete with all the usual caveats, the cake looks pretty much baked by this editor’s reckoning. It’s now time to move on and debate, among other things, how long the recession will last, how deep it will be and what it all means for strategic-minded portfolio design.