
How we will know when a recession is coming? - vlindos
https://www.brookings.edu/blog/up-front/2019/06/06/how-will-we-know-when-a-recession-is-coming/
======
MegaButts
Out of curiosity, how reliable are all of the metrics we use for measuring
economic health? For instance, how reliable is the unemployment rate when it
is a highly political number with lots of incentives to misrepresent (ie the
chronically unemployed are excluded from the count)? Beyond that, how much are
these indicators just fudged or straight-up lied about?

Everybody is happy to agree with me when I say that China fudges their
numbers, but when I say other countries are capable of the same thing they
tell me I'm crazy. I am not an expert on China by any means, and I don't
believe other countries report their economic health in the same way; but I
also don't buy that everything the US and other western countries say is
gospel.

~~~
kasey_junk
The markets watch the BLS numbers like crazy and compare them to estimates
from private sources that come from a wide range of methodologies. Frequently
the big moves in the markets are not triggered by the bare numbers but from
the difference between the expectation and the numbers.

If there was a systematic fudging of those numbers lots and lots of people
would notice.

~~~
theturtletalks
You're right, but what if revealing the discrepancies wouldn't be beneficial
to the company? Many people knew about the subprime mortgages before the 2008
recession and no-one came forward, although some shorted it.

~~~
kasey_junk
I worked in that industry during that time period and its just not true that
no one came forward. As early as 2003 Warren Buffett straight up called them
“weapons of financial destruction”. In 2005, the World Bank released a report
suggesting that the derivatives the banks were holding could cause a financial
crisis.

I remember the day the yield curve inverted in 2005 because I was working for
a company that made risk assessment software for MBS. Our call center blew up
as the reports started showing how risky balance sheets were.

It’s a nice story that Michael Lewis writes in “The Big Short” about how only
a few people made money shorting the crisis but a) its largely not true and b)
its more the fact that shorting isn’t nearly as easy as HN seems to think it
is.

~~~
theturtletalks
You’re right, it’s a bit much to say no-one came forward, but enough wasn’t
done to catch what was going before it came crashing down. The comment I was
replying to was implying people would notice discrepancies and we would be
able to catch it.

~~~
kasey_junk
If Warren Buffet & the World Bank said that the BLS was cooking the books I
bet it would be a big deal.

------
SeeDave
Will the US economy experience a recession in the next...

100 years? Yes!!!!

50 years? Yes!!!

25 years? Yes!!

12.5 years? Yes!

6.25 years? Yes

3.125 years? Yes?

1.5625 years? Maybe

.78125 years? Maybe?

.390625 years? No?

0.1953125 years? No

0.09765625 years? No!

~~~
benj111
People have been calling the next recession for more than 3 years, it'll be
fun to return to this prediction when we actually do have a recession, as you
think it's likely within 3 years.

By the way, a recession is technically 2 quarters of negative growth, so
assuming we start from when we actually know we're in recession, it's a
minimum of 6 months from now before we are in recession so ".390625 years"
would be a definite no.

~~~
aeternum
The market is level two chaotic system, meaning it reacts to predictions about
it.

The predictions may have been correct if it weren't for the fact that the
predictions themselves perturbed the system.

------
anm89
This is a really interesting metric but I'm going to argue that it doesn't say
that much about our current situation given that our current unemployment
numbers are highly skewed due to a strong shift towards low quality part time
work and a large number of people opting out of the labor search (who are not
considered unemployed in these statistics).

I could see an argument made that given that this is statistic is relative to
itself and just tracks movement it shouldn't matter if things are different
now than in the past but it feels to me like the nature of this metric is so
different now than it was in the past that it's just not an apples to apples
comparison.

~~~
testis321
I do not have any real numbers, and this is just anecdotal, but in Slovenia
(small EU country), a lot of our larger retailers have replaced some posters
(basically ads) in their stores with "workers needed" posters, and some have
literally advertised that they're looking for workers in their paper ads we
get in the mail. Also a car repair shop literally had an radio ad that they're
looking for repairmen.

It might be just a coincidence, but it's easy to get/change jobs at the
moment, if you're actually willing to work.

~~~
Swizec
My sister was working in those retail positions in Slovenia as late as 2 years
ago. The pay is laughable (3eur/hour) and the working conditions are shit.

A promotion grants you a whopping 10cent rate increase. A whole 0.8 euro per
day if you pass a test!! Oh and you don’t get more than 30 hours per week coz
then they’d have to pay benefits.

No shit they have a hard time hiring. Most young people will rather try being
an instagram influencer than work for those wages. Got nothing to lose at that
point

~~~
testis321
[https://jobs.aldi-hofer.com/hofer-kariera-
si/job/1000-Ljublj...](https://jobs.aldi-hofer.com/hofer-kariera-
si/job/1000-Ljubljana%2C-Kranj%C4%8Deva-ulic-Prodajalke-
ci-%28Ljubljana%29-Osre-1000/538277901/?feedId=245101&utm_source=j2w)

They're offering 1.2*minimum wage for 30h/week.

For someone without any other qualifications, that's not bad.

I dont know where she worked, but most offer more. Ever barteding gets you
7+eur/h and tips in Ljubljana.

~~~
Swizec
Probably a trick of being a student job. I didn’t dig too much and instead
nudged her to spend time working on actual long term passions (personal
training et al)

------
rubicon33
> The Great Recession officially ended in June of 2009

As a "millennial" who graduated in 2008, I seriously hate reading shit like
this. Maybe it recovered for the Boomer's pension funds and 401k's, but it
took many of my friends over a decade to find work equal to their
qualifications. They're only JUST NOW starting to get payed what they deserve
(PHDs, MBAs, and Masters degree holders).

~~~
drevil-v2
> They're only JUST NOW starting to get payed what they deserve

That is absurd. In a free market with free movement of goods and people,
whatever you are getting paid is what you "deserve" aka what other
participants in the market are willing to pay for your services.

It is only explicit government intervention that overrides this process;
subsided renewal energy sources, childcare, housing etc.

But with everything else being equal your friends were getting exactly what
the market could afford. Just because you have a PHD or Masters does not mean
someone else owes you a high paying salary.

~~~
rubicon33
I would have thought it was obvious what I meant by "deserve" but apparently I
have to spell it out.

No, I don't mean that they are owed anything. This is life after all. You nor
I, are owed a damn thing. And in a free market, that's explicitly true.

Duh.

What I mean by "deserve" is... prior generations with similar qualifications
enjoyed a much smoother, and more lucrative career. Boomers were handed a
golden egg, and managed to nearly destroy it. The middle class is shrinking,
wages are stagnant, and frankly if you're not underemployed as a millennial
you're among the lucky.

~~~
tdfx
I agree with your premise that baby boomers have very tenuous grasp on how
unique and lucky they were to grow up in the economic time period that they
did. When the vast majority of the world's population is third world farmers
and your country is at the forefront of industry and technological progress
it's easy to coast and succeed.

However, that's clearly no longer the case and the average American needs to
compete with a much broader pool of labor, increasing automation, and a
growing middle class in more populous, emerging countries. I don't think
millennials "deserve" what the baby boomers had; I just think the baby boomers
didn't particularly deserve it either and it's becoming more and more obvious
that the "normal" they experienced is an outlier era that will not return.
Millennials need to learn to compete in this world and on average they are not
well equipped to do so because they learned their perspective from a
particularly (and unusually) privileged generation.

~~~
rubicon33
I like your perspective on the situation. It's both accurate, and far less
pessimistic than mine. I'll do my best to adopt this way of thinking going
forward.

------
H8crilA
No economic numbers are reliable due to reflexivity - "reliable numbers"
become inputs for policy makers and market participants, which drive changes
in the economy that affect the previously "reliable numbers".

George Soros wrote extensive literature on the topic. He called his fund
(second best performing hedge fund in history) the Quantum Fund because,
according to him, true nature of economic reality is unknowable to humans. As
in it is genuinely impossible to know, regardless of the amount of efforts.

Example: mortgage credit decisions depend on people's earnings and collateral
value. Problem? Both earnings (salaries) and the collateral value (home
prices) depend on the amount of credit in the system.

The economy, being a subset of psychology/sociology, cannot be understood via
normal science because the level of understanding is not independent from the
actual rules at work. I.e. the more we understand the different-er we behave.
Unlike atoms, which don't care what humans think and just go about their own
business.

------
outside1234
The current odds of a recession are the same as just before the big recession
of 2008.

Also, concerningly, the real estate market is just as leveraged and bubbled as
then as well.

[https://www.forbes.com/sites/jessecolombo/2019/06/30/current...](https://www.forbes.com/sites/jessecolombo/2019/06/30/current-
u-s-recession-odds-are-the-same-as-during-the-big-short-heyday/#10258ec1708d)

~~~
novaRom
This analyst writes about that bubble and that it will burst since many years.
What is the point? You simply cannot predict future exactly based on
historical data. Times are different, technology is different, human behavior
is changing, demography is changing, etc.

------
joeyrideout
It baffles me how financial analysts can try to answer such a question by only
focusing on the domestic economy. Economies are so interconnected, the next
recession is likely to be a global recession. Alarm bells are currently
ringing all over the world, but the U.S. is isolated to some extent due to its
currency status and relatively stable markets.

It's like standing in a room on the top floor of the Titanic and measuring
whether the boat is sinking by measuring the water level on the floor in your
room. Meanwhile, if water is getting into the rooms below you...

~~~
novaRom
>Alarm bells are currently ringing all over the world

This is not true. Please be more specific with 'all over the world' statement.
Do you speak about 5% or 7% of world economy?

------
Animats
_" The indicator has both correctly signaled a recession 4–5 months following
the beginning of the recession and has virtually never called a recession
incorrectly since 1970.'_

This is more like "how will we know when a recession has already started
without waiting for a down GDP for two quarters." That's 6 months in. This
signal lets you know 4-5 months in. Not exactly a leading indicator.

~~~
the_watcher
> has virtually never called a recession incorrectly since 1970.

"virtually never" also sounds like weasel words considering the total number
of recessions.

~~~
asdfman123
Also, what happened before 1970? Is it possible they're just overfitting here?

~~~
the_watcher
IIRC that's when the key inputs to all these recession indicators began to be
collected.

------
gzu
Why does it have to be just a recession with rebound a few years later? I’d
argue many are thinking too positive following 2008 where everything will go
back to normal and prices will rally to all time highs. The US economy almost
blew up into a full blown depression in 2008. The Fed swooped in to save the
day. Can the Fed do that again indefinitely with not only US but potential
problems worldwide?

The global economy is reaching uncharted territory now with the amount of debt
and negative interest rates.

Maybe a depression like 1930’s are a relic of the past once we decoupled from
the gold standard. Central banks today have full power to devalue currency
indefinitely in order to maintain the financial status quo.

~~~
jethro_tell
> Can the Fed do that again ...?

I mean they don't have much to give do they? Unless we're doing negative
interest rates this time.

~~~
ChaseT
Japan did negative interest rates in 2016.
[https://www.npr.org/templates/transcript/transcript.php?stor...](https://www.npr.org/templates/transcript/transcript.php?storyId=733800857)

------
iamwil
For fun, I put together [http://isitrecession.com](http://isitrecession.com),
in the spirit of [https://isitchristmas.com](https://isitchristmas.com)

It just shows the inverted yield curve, pulling down data from the US treasury
everyday, and subtracting the 1 year from the 10 year interest rate.

~~~
nodesocket
Can you also plot the S&P 500 (SPY) either overlayed or below the yield curve
graph. Would be interesting to correlate.

~~~
iamwil
Will do.

~~~
novaRom
You can also add frequency of words like 'recession', 'downturn', etc. You may
count them on different news sites. I did it like 15 years ago, it was a lot
of fun.

------
Havoc
We don't.

Anyone with any real predictive power over that question had a license to
print money

~~~
kasey_junk
How?

~~~
eberkund
Buy low, sell high

~~~
rjf72
More like borrow + sell when high, buy + return when low. Doesn't flow off the
tongue as well though, have to admit.

------
tiborsaas
Interesting and makes sense for someone someone like me who's a dummy for
macroeconomics. Unemployed people can't afford to spend too much, thus
businesses revenue decreases, they lay off more people and it becomes a
negative feedback loop.

I've also seen this VOX documentary about the "yield curve" which also famous
for predicting recessions.

[https://www.youtube.com/watch?v=xiiHjrewXNI](https://www.youtube.com/watch?v=xiiHjrewXNI)

------
rossdavidh
So, I make no claims as to its accuracy, I'm just putting this out as food for
thought, but here's another possible metric:
[https://trends.google.com/trends/explore?date=all&geo=US&q=r...](https://trends.google.com/trends/explore?date=all&geo=US&q=recession)

------
nessunodoro
in one of Buckminster Fuller's books (Critical Path IIRC) he recalls an
indicator of the Great Depression being half-finished housing developments -
rows and rows of houses, covered in tarpaulin, plumbing exposed like a
skeleton, abandoned. I recalled this vivid description later during the
mortgage crisis of 2008.

------
brewdad
“Recession is when your neighbor loses his job. Depression is when you lose
yours." \--Ronald Reagan

~~~
mothsonasloth
Harry S Truman originally said it, Ronald Reagan added on an additional part.

"Recovery is when Jimmy Carter loses his job"

~~~
brewdad
Doesn't surprise me that it wasn't original. I purposely left off the last bit
to avoid "politics" creep.

------
mirimir
Maybe I'm just too cynical, but we know that it'll happen just before the next
Presidential election. If the party in power can't get enough buy-in from
enough influential people.

~~~
refurb
You believe the party is power has enough sway to move the needle on a $20T
economy?

~~~
mirimir
From what I've read over the years, it's happened before.

Or at least, it's been claimed that it's happened before.

PR obviously also plays a huge role.

[https://www.nytimes.com/1991/10/09/business/recession-and-
re...](https://www.nytimes.com/1991/10/09/business/recession-and-re-election-
don-t-mix.html)

[https://en.wikipedia.org/wiki/Early_1990s_recession_in_the_U...](https://en.wikipedia.org/wiki/Early_1990s_recession_in_the_United_States)

[https://www.brookings.edu/opinions/the-economy-and-the-
elect...](https://www.brookings.edu/opinions/the-economy-and-the-election/)

[https://www.bizpacreview.com/2019/08/19/fox-friends-not-
afra...](https://www.bizpacreview.com/2019/08/19/fox-friends-not-afraid-to-
show-medias-deliberate-attempts-to-crash-economy-by-crying-recession-787371)

[https://www.dailywire.com/news/50222/bill-maher-recession-
wo...](https://www.dailywire.com/news/50222/bill-maher-recession-worth-it-
prevent-trump-paul-bois)

[https://www.nationalreview.com/news/stocks-drop-as-
recession...](https://www.nationalreview.com/news/stocks-drop-as-recession-
fears-grow-trade-tensions-loom/)

[https://www.salon.com/2019/08/24/history-suggests-that-a-
rec...](https://www.salon.com/2019/08/24/history-suggests-that-a-recession-
might-doom-trumps-re-election-chances/)

------
arkadiyt
All these indicators are guesses at best, but out of curiosity I checked the
current Bureau of Labor Statistics numbers [1]:

Prior 12 months lowest unemployment rate: 3.6% (in April & May 2019).

Prior 3 months average (June/July/August 2019): 3.7%.

So according to this metric we are not in a recession.

[1]:
[https://www.bls.gov/web/empsit/cpseea03.htm](https://www.bls.gov/web/empsit/cpseea03.htm)

~~~
trufflebutter
Typically a recession is defined by having at least 2 quarters of decreased
GDP growth, so it is often a lagging indicator. By the time we definitively
know we are in a recession...we've already been in it for 6 months. That is to
say that I'm not sure how good of an indicator a rolling average of
unemployment is, especially in a gig-economy sort of market. But I agree,
using indicators to predict a recession is basically an educated guess, with
little emphasis on the educated part.

------
11thEarlOfMar
Very recent report from the Bureau of Labor Statistics. Number of employed
Americans is at an all-time high, participation rate is not:

[https://www.bls.gov/web/empsit/cps_charts.pdf](https://www.bls.gov/web/empsit/cps_charts.pdf)

For example, slide 15, percentage of the unemployed deemed as long term
unemployed declined from 45% to 20% from 2012 - 2019.

------
code4tee
People have been calling for a recession/big market correction since around
2012. At some point an analyst will be right and then they’ll hold the throne
of “this analyst predicted the last recession... hear what they think now”
until the cycle repeats itself again.

Those that have been around a while know this whole story plays out on a loop
over and over and over :-)

------
swsieber
The transportation sector seems like a pretty good indicator. Maybe a dip in
the number of semi's in the road over time?

------
srl
On topic, and well outside of my ability to know how seriously to take it:
[https://johnhcochrane.blogspot.com/2019/09/more-on-low-
long-...](https://johnhcochrane.blogspot.com/2019/09/more-on-low-long-term-
interest-rates.html).

------
buboard
Maybe the recession will never come?

What are we going to do now without the recession?

In a way, that thing was a solution.

~~~
29_29
Impossible. Ray Dalio explains the business cycle and why recessions are
inevitable with our credit based system
[https://youtu.be/PHe0bXAIuk0](https://youtu.be/PHe0bXAIuk0)

~~~
streetcat1
Possible.

The system got broken by the 2009 rescue attempts (QE 1,2,3).

We are in a different regime right now (negative interest rates). I would not
bet on any recession now or in the future.

------
newsreview1
Just looking at shifts in the national unemployment rate will never render an
accurate assessment of the labor market. It simply overlooks how, why, and
which folks are leaving jobs or accurately reflect the under-employed.

------
fooker
You won't. If you could, you could make an enormous profit off this knowledge.

------
avonmach
...when student loan delinquency increases and consumer spending decreases

------
dev_dull
I worry a lot less about a market correction then I do a political
"correction" affecting the markets. We're so polarized. You can sense a
desperation among those who took out an exceptionally high amount of student
debt and have no realistic way of repaying it. Risk of medical bankruptcy is
also extremely high. Among other things, these types of occurrences make
people desperate, and desperate people are willing to try desperate solutions,
such as radical wealth redistribution, or government/centrally planned
economies (socialism), or ...? Ask yourself how 50% of the country might feel
if we removed from power (either constitutionally or other means) our
democratically elected president?

~~~
tempguy9999
This is pure fear spreading. Why are you doing it - is the future really so
terrifying?

~~~
dev_dull
What fear am I spreading? I think the market is more volatile that many people
believe, but more importantly the source of that risk might stem from a source
they might not expect.

~~~
tempguy9999
From this post, nebulous statements of dread

"You can sense a desperation"

"make people desperate, and desperate people are willing to try desperate
solutions"

"such as radical wealth redistribution, or government/centrally planned
economies (socialism) [already happened, no?] or ...?" (or = unstated fear)

"radical wealth redistribution, or government/centrally planned economies
(socialism)" (oh noes, the horror!)

Your prior posts go the same way. Pretty good way of stirring up dread. Basic
question then: what have you done about any of it? Or, what should _we_ do
about it, specifically?

" think the market is more volatile that many people believe" \- I think
anyone with half a brain is aware there's a crash coming. For real concern, a
carrington event or global warning are likely much more dangerous. So do
something.

------
mudlus
Massive (last I checked 13 trillion and rising) negative yields government
bonds market all with. Lowering interest rates twice already, heading to
another one next week (rumor). Instead of bailing out the homeowners in 2008,
they bailed out the banks. "Too big to fail." Think about this stuff people.
Nothing has changed, nothing ever changes, Governments are incentivized by the
market to steal money from the working class to protect the stability of an
economy. It's simple: SLOWLY separate money and state and we don't have to
worry about manipulation of the money supply to "protect us." Buy Bitcoin.

------
AkaShiroKen
I watched a Ted talk sometime ago about how they've discovered a method to
genetically modify mosquitoes to eradicate entire populations of mosquitoes
from an area (I think it was it made them mos babies die due to genetic
engineering).

I couldn't find it now but it seemed like a massive success at the time almost
eliminating all mosquitoes from the a city in Brazil (iirc).

Anyone know what happened to it? If that were to come to fruition than a lot
of disease in addition to malaria like chikungunya, dengue, etc will be cured
too.

~~~
SketchySeaBeast
I believe you're on the wrong post.

