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Global economy is probably in recession (reuters.com)
75 points by lopespm 66 days ago | hide | past | web | favorite | 75 comments

At what point (if even possible) does the manufacturing and physical goods based indicators lose their signaling status due to a more service based economy? This question mainly revolves around advanced economies like the U.S, last quarter business investment was negative but consumer spending was robust. Services and healthcare are huge parts of the economy, are our indicators still as valuable?

Granted, the global economy certainly seems like its close to recession territory, with no help from international tensions — just wondering if our measurements are losing their viability. Even Jay Powell cast doubt on the Phillips curve recently.

> Services and healthcare are huge parts of the economy, are our indicators still as valuable?

That's true. But the value of manufacturing doesn't necessarily come from its total share of the economy, as much as it does from its fast responsiveness.

Many services, both on the business and consumer sides, tend to be locked in for fixed contact terms. They also tend to be lumpy, either you buy the service or you don't. In contrast, most goods are purchased on-demand at the time they're needed. And it's easier to cut back gradually over time, by purchasing smaller quantities.

Think of the difference between Netflix and Amazon. Netflix is purchased in monthly increments. It's also all-or-nothing. If a household's belt-tightening they might not cancel their streaming service until they're well into the contraction. In contrast they'll probably immediately dial back how much plastic crap they're ordering from Amazon almost immediately.

So, even if manufacturing was only 1% of the overall economy, the high and fast responsiveness of its output to economic conditions makes it a good canary in the coal mine for the rest of the economy.

If anything the United States has swayed too far into the service sector while ignoring its infrastructure. Without functioning infrastructure you can't have a service economy. Infrastructure requires manufacturing and product.

As long as humans continue to exist in the physical world, take up physical space, and consume physical goods for food, shelter, and comfort, then manufacturing will be a critically relevant part of the economy.

As long as humans continue to eat, agriculture will be a critically relevant part of the economy.

We don't normally look at agricultural indicators like crop yields, arable crop land, rainfall, food prices, and commodity futures because agriculture's a small but critical part of the economy. In modern developed economies, under 5% of the population is employed in farming. So while soybean tariffs may be tragic for soybean farmers, they have little effect on the broader market, just as Bitcoin price crashes may have tragic effects on Bitcoin miners but the broader economy doesn't care. The assumption is that we have enough food, and as long as we continue having enough, metrics about how much food we produce aren't that important for measuring the overall health of economy. This despite those metrics being a critical factor in human population growth for millenia.

Manufacturing is rapidly attaining the same status. We will continue to need stuff for the foreseeable future. However, as long as we have enough stuff, how manufacturers do is not terribly important to the broader economy, because they're a rapidly shrinking source of total spending. In many cases, when they're struggling it's because there's too much stuff and they can't find buyers for their products.

> We don't normally look at agricultural indicators like crop yields, arable crop land, rainfall, food prices, and commodity futures because agriculture's a small but critical part of the economy.

Not just that, but relatively few people (at least in the US; this might be different for other "developed" nations, and is probably very different for "developing" countries) are exposed to the agricultural sector on a day-to-day basis (even in rural parts of the US, for example), which means they probably don't have the intuitive understanding of the agricultural sector necessary to determine whether or not it's doing well. Most people in the financial sector (I'd assume, and have observed) tend to live and work as far from farms as possible :)

Agriculture's also pretty unlikely to be a useful indicator of recession (I'd imagine; I'm no economist) because people need to eat; whether you're eating a meal at a restaurant or a meal you cooked yourself, or whether you're buying fresh or frozen/canned, the underlying agricultural side of that supply chain is gonna be more-or-less unaffected (at least by the supply/demand curve jumbling; loan availability, real estate values, etc. can still negatively impact the ag sector in the same ways they negatively impact other sectors), if not moreso given the typical amount of land required to do farming/ranching at the scale necessary to make decent money from it (so i.e. excluding subsistence and/or recreational/hobbyist farmers).

This leads to two questions:

(1) if it’s a small but critical part of the economy, could it make sense for it to switch to a centralised model?

(2) what happens when we have “enough” services?

1) In agriculture at least it doesn't - many small competing producers can produce a lot more efficiently than one big one with no checks on inefficiency. There's a lot that's fucked up about Big Ag but most of the egregious stuff (like corn subsidies, or small sharecroppers being forbidden to own or save their own seeds because of IP restrictions) would be fixed by more competition and less government involvement.

2) The economy shifts into the next phase of development. I don't know what that'll be - artistic pursuits? space exploration? - but eventually the service industry will face the same fate as manufacturing and agriculture, and we'll move into a new economic era.

> artistic pursuits? space exploration?

Perhaps artistic pursuits in space :)

Humans don't take boredom well. They'll find something to do even after all their needs are fully met.

Art is a service. I’m more curious about what people would do to get any of the things that are currently “the economy” when all needs are oversupplied by, say, a mere 5% of the population in full time work. Would people work less for the same goods? Would there be high unemployment? How do things shift and rebalance? UBI sounds good, but is it politically feasible — some people get called “benefit scroungers” while others are called “pensioners” and “the royal family”?

Communism, mate, that's communism come true.

1) Soviets did this with a mixed success.

2) we'll do something else

1) Soviet example is not useful, because manufacturing wasn’t “minor” back then.

2) what “something” is neither primary production, nor manufacturing, nor services, yet capable of being scarce in a way that could be meaningfully traded for the aforementioned?

If you are talking about agriculture, well, it was a mix of bad and horrible that every other country that adopted communism worked very hard to find a different model.

Manufacturing PMI probably loses its leading indicator status once automation becomes more sophisticated. Many of the sub components of manufacturing PMI (new orders, inventories, etc) completely vanish in importance at that point. Considering there is virtually no inflation anywhere in the world at the moment, there's no incentive for businesses to really invest in this stuff at the scale required to really eliminate the human in the loop.

Powell mentioned the Phillips curve because it's been borderline irrelevant for a while now due to unorthodox global central bank policies.

> 'At what possible point does the manufacturing and physical goods

> lose their signaling status due to a more service based economy?

There was a comic about (sorry, no translation this time...cos -there was another comic about translation P-: )

sry-no-more-hotlinking ^^//deviantart.com/4bigholidays/art/00222-BEEEB-BEEEB-BEEEB-809000483


I've eliminated entire line items of expenses thanks to software, buying quality and public transit that I feel like improved my life enormously but reduced my consumption a great deal. Less physical goods and effort: better for me.

I’m assuming you’re talking about private app based transit here, not public busses and trains, based on the relationship to software. If that’s true you may be shifting the ownership of the physical goods used to transport you, but as long as they are private (as in no more efficient than a private car from a consumptive standpoint) there are just as many physical goods at play- more if you’re using any of the last mile scooter/bike/non-durable options out there

OP is likely referring to Google Maps Transit, One Bus Away and similar bus/train tracking apps making public transit predictable and usable for their lifestyle, not the piecework economy of private taxis like Uber & Lyft.

Once (if they ever) become non-scarce.

>(Chartbook: tmsnrt.rs/2Yyra8r)

Is there a reason why the dip in 2016 isn't considered a recession, but this dip is?

The first figure shows the percent change from the previous year, so it’s basically a moving slope of the actual trade volume. If it’s positive, trade is increasing. Compared to the slope in 2009, I wouldn’t call the current decrease a recession (but I’m not an economist). It may be negative but it’s still pretty close to zero.

The author’s thesis is that mistaken protectionist policies that affect trade are not in the interest of business and the economy. I don’t know that we can conclude that, as changes in policy tend to create new opportunities for businesses, both entrenched and new. The same cannot be said for policy that is continuous and non-changing.

But changing policy at rapidly and at whim makes it difficult for businesses to invest in anything that has a longer payoff. I think on balance business people would prefer to have a fairly stable macroeconomic and regulatory environment. Look at the UK, where uncertainty over Brexit has caused a substantial drop in business investment.

Investors are different than business owners, and have different goals. Business owners tend to find opportunity in change, whereas investors prefer a steady status quo.

A recession is a prolonged period of economic contraction. That dip wasn't long enough.

As for now, it's to early to call. It takes time trip measure GDP; the author's opinion is that, when the data will come out, it will show that we entered a recession.

There were fears of recession in 2016 too

And 2015

Also 2017-2018.

Basically every year there are fears of recession.

>Basically every year there are fears of recession.

Not if you're an economist. We have some standard indicators to gauge economic growth, and those years you mentioned looked fine according to most indicators.

The "economists don't know what they're doing" trope is overused. Economists are always wrong, but they still have a track record of being less wrong than everyone else.

"Economists have correctly predicted 9 of the last 5 recessions."


More like, predictably bad in a wisdom-of-the-crowd way that could actually result in a good prediction: https://www.bloomberg.com/opinion/articles/2019-07-19/recess...

So, that's what economic math looks like!

Most economists see a recession as a negative economic growth for a period of 2-3 quarters.

I'm really worried this is the one that we don't get out of.

We've basically built our entire global economy on the idea that externalities don't matter. Recently, I came across this (https://www.sciencedaily.com/releases/2019/08/190808115117.h...) - between 1970 and 2012 there has been an 88% decline in large vertebrates (ie fish). We already know that plastic is poisonous, our entire economy is run on fossil fuels, etc. We've got less than ten years to completely change how the entire planet operates socially or we'll just cook to death. How likely is that?

It's gotten to the point where I'm walking down the street and the cognitive dissonance is just unshakeable. What are people working so hard for, accumulating so much "wealth" for, when the idea that anyone is ever going to retire is laughable? How are people doing anything that involves a time horizon of more than 5 years?

The recent shooters are evil sad people, but I understand. The world is terrifying and it's driving everyone crazy. I just don't know how people are coping.

Your comment feels very doom and gloom for me living in the Northeast USA. Where specifically do you live? If you look at the forecasted outcomes of climate change, the most likely losers are NOT in USA/Europe, which is where most of HN readers are based. India, the Middle East, parts of Africa, parts of Mexico, low-lying island nations - these are the really scary places to be based out of in the next 100+ years. I don't think rich folks in the developed nations have the most cause for alarm, sad to say.

Still, there's reason for hope. Many people care very strongly about saving the planet/biosphere, new businesses and research are cropping up all the time in this space. By the time 2050 rolls around, we very well may have technical solutions to some of our pressing environmental issues that seem to be killers now. Just consider 2019 -> 2050, that's 31 years. Back in 1988, wind and solar were a dream, EVs were nonexistent outside the golf course, and very very few people were passionate about fighting climate change.

Except of course, with rising sea levels due to glacier melt many of the major US cities will be underwater. You mentioned the Northeast? Here's an article about how New York is going to be underwater (https://gothamist.com/2019/05/21/new_climate_report_suggests...).

Also, climate change doesn't have to hit your area specifically to be harmful. Crop failures will lead to wars and displaced people. Water shortages in India lead to angry people that want to fight over Kashmir, increased migration from climate affected areas to richer areas cause ethnic tension (from North Africa to Europe, from South America to the US). As an aside, clearly the policies of nationalists are abhorrent, but they don't occur in a vacuum, and, in the US at least, the left hasn't provided a clear path to a solution to this issue.

Here's the CIA being worried about such things (https://insideclimatenews.org/news/30012019/worldwide-threat...).

Yes, this is very doom and gloom. The facts are gloomy and connecting the dots on our possible futures spells out, in all likelihood, doom. How can you not see this?

If that happens, we’ll adapt to the rising tides, either building infrastructure to compensate or moving inland. Florida’s likely doomed either way but other major cities don’t have to be.

I’d rather be on the side of the border that’s angry about the immigrants than the side of the border the immigrants are fleeing from.

Humans are a very adaptable species and there are no guarantees that the environment should continue as it once was perpetually. The situations in theses articles are just as likely to not happen as they are to come true.

It's important to mention that the current-ish (started 10,000 years ago in the Younger Dryas) warmth of Interglacial era made us able to settle down and practise agriculture. Before that, for millions of years - we're stuck as Hunter-Gatherers, forever in the mercy of Nature.

Perhaps in the days of tomorrow, we will once again be in the mercy of Nature? Of course not, as long as we retain our technologies. Ergo, even if you (and I agree) don't think climate change will doom humanity as a whole, I'd still be sympathetic to rational campaigns reducing it's effects.

The situations in theses articles are just as likely to not happen as they are to come true.

Um, what? On what are you basing this likelihood on? These are scientists that study this for a living. This sounds like complete fabrication.

That doesn't mean that they can predict the future with high accuracy. They might have some chance slightly above random but there are way too many variables unconsidered.

All it takes is one asteroid to invalidate all the predictions. Or one war. Or one biological contagion. Or one technological innovation.

Then we should just lay down and die from the fear.

"the most likely losers are NOT in USA/Europe, which is where most of HN readers are based"

Indeed. We'll just get to deal with a rehash of the anti-immigrant rhetoric we're seeing now thanks to a refugee crisis our policies and consumption rates created.

Europe needs to build themselves a wall, too.

Where do you think people will go from the regions that get destroyed by climate change? Or will they just disappear into thin air rather than causing the largest refugee wave we have ever seen?

Most americans believe they will die and reduce the surplus population, fixing any problems once and for all.

Citation needed.

I'm 18, I don't think I'll be able to retire, I'm still trying to figure out how exactly to survive the collapse of civilisation.

> I'm still trying to figure out how exactly to survive the collapse of civilisation.

You're listening too much to alarmist stuff. Things may get bad. It's not likely to be the collapse of civilization. Make sure you're able to survive the continuation of civilization, since that's the much more likely scenario.

My dude, we have no idea how bad climate change is going to hit us, automation is going to put tons of people out of jobs, there is a loneliness crisis, the gap between rich amd poor is bigger than its ever been, western countries are more divided than ever before, people are checking out of reality, social bonds are all but nonexistent, ecosystems are collapsing on the regular, birth, gender relations are the worst they've been in centuries, fertility rates are plummeting, we're on the brink of another recession, the nazis are back, China is building the most authoritarian nation ever devised, I'm not even close to done.

I highly doubt we're going to get past 2050 without the foundations of society collapsing.

First: I am not "my dude" to you.

Second: Things look ugly right now. You'd have to be blind not to see it. But the advantage of being 57 instead of 18 is that I've seen this before, and I've talked to people who've seen even more. I don't know that this looks blacker than the 1980s, when nuclear war looked like a very real possibility - not just sometime in the future, but tomorrow. I'm not sure it's blacker than the Cuban Missile Crisis. I'm not sure that it's blacker than World War II, especially for those living in Europe, Russia, or China. I'm not sure that it's blacker than the Great Depression, when it looked like society - or at least the economy - had broken permanently.

Yes, it looks bad. It is bad. It's not worse than it's ever been, though. We probably will make it through this, though it will be a bumpy ride.

1935-1945 was probably the most apocalyptic decade in living memory.

I do think this is worse than any of the things you listed.

If this results in the collapse of civilization, it will definitely be worse than any of the things I listed (none of which resulted in the collapse of civilization).


There's two ways to try to analyze this. One is to look from a 2019-centric perspective, where we know that nuclear war didn't cause the collapse of civilization, but we don't know whether climate change will. From that perspective, "might" looks worse than "definitely didn't". But I think that's kind of an unfair comparison.

The other way to try to compare is to look at how likely it looked when you didn't know the outcome. That's kind of subjective, so I can't really argue with your opinion if you're evaluating things the second way. To me, though, having been in both places, the 1980s frightened me considerably more.

(There may be a stage-of-life thing, too. I was 18 in 1980. Maybe the danger that you see around that age is the danger that you fear the most.)

Anyway, those are just some thoughts. I can't prove you wrong... but I sure hope you are.

>Policymakers are reluctant to announce a recession for fear of harming consumer and business confidence and worsening the downturn (“Business cycles: theory, history, indicators and forecasting”, Zarnowitz, 1992).

Not these days.

Breathless headlines like this are usually a sign that everything is fine. If the journos start saying you should mortgage your house and buy {tulips, dotcom stocks, bitcoin}, then that would be a sign that the market is peaking.

If your definition of fine involves the current level of poverty worldwide and the increasing trends towards billionaires exasperating at all-time-low tax rates, then everything is peachy.

The real fallacy in this headline is the idea that any measure of how well the world is doing, financially, could have at any time recently been adequate.

> involves the current level of poverty worldwide

Yup - poverty has been dropping worldwide over the last 30 years and billions have been lifted out of poverty. These are the good times.

So, a possible hint of a downturn, and we're calling it? Can we wait and see what Christmas does?

The title says "probably", and you are misrepresenting it as two extremes (a "hint", and "calling it") and expressing this misrepresentation like you're appalled.

What is your motivation for this?

My motivation is calling out what the possible motivation for the article is, which is my duty and right, as a member of the HN community. I can weigh-in just like the author of the piece did.

Statements like:

By most measures, the global economy is in the midst of the deepest slowdown since 2015, and in many cases since 2009.

The author goes on to explain that:

the problem has stemmed from trade policy, which has turned sharply protectionist and attempted to remake global supply chains.

Yes, things are changing, and like pouring antiseptic ointment on a burn, it can sting a little. The turning of a big ship takes time, longer than it took to create this article and make it seem we are off-course.

Never has there been a better time to invest: the markets have already priced in 100% of the expected value of all of these worrying indicators, so you'll be getting a good price. In fact, no matter what happens you get a good price. On average, today is always a great day to invest.

^ This is the exact kind of message that makes me want to pull out of the market. Although, I already did a few weeks back when the S&P did a head and shoulders (which turned out to be a false positive, apparently). Still not rushing to put any more money in the market, though.

Yep. "There hasn't been a better time to buy a home" was pitched to me back in 2008.

The message that the stock market trends upwards except for random movements that retail investors can't predict was as true last year as it is today.

Definitely came to mind when reading that. I was a Ford brat, and the husband and I bought when stock was down around the $2 mark. We've made a considerable amount.

I just finished reading a book about the life of Laura Ingalls Wilder, who lived through something like 6 different depressions. Given the historic rates of inflation, innovation, and globalization, I don't really think the stock market is a bad bet IF you're willing and able to play the long game. The 20-30 years game. Get more conservative as you get older. Yes, still possible to get screwed, but it's one of many ways to keep options open.

Sounds like you're selling when it's low and buying when it's high.

I sold at the height of the right-hand shoulder. So if I stayed in, I'd actually be worse-off now.

You might be right on some of these points, but your delivery seems meant to cause doubt because it is unconditionally optimistic. It causes the reader to question you. Do you mean to cause doubt?

Yes, the market is perfect and infallible.

Maybe not infallible, but most finance professionals have heard of these indicators. Isn't a it a bit hubristic to think that the HN front page will feature economic news that surprises wallstreet?

No, because wall street maximizes profits and leaves individual investors holding the bag. You want to get in front of the herd, not be chasing it.

Right, but when the media reports on macro indicators they're doing it on bag time. Wall street has already seen the yield curves, and that is how they leave retail investors holding the bags. But now that everyone still in the market is holding an empty bag, the S&P accurately represents the value of the bag. It's not a bad deal today because the baggening already happened.

The bag hasn't been passed yet.

That's going to happen when the funds go through a sell-off. They know it too, which is why they're trading despite the indicators, because they're more plugged into the market info that will let them get off right before the cliff.

Unless you're day trading, individuals should be trimming right now and increasing cash holdings, because the indicators available point to the sell off coming. You're welcome to try to run with the fund herd but they're better equipped and do it full time, meaning you'll be struggling to keep up with them. Better to get in front of the funds than chase them.

Right, assume everything is up 8% from where it is today, 3 years from today. The reality may be lower than higher, but unless you're taking on a ton of risk, you have an excellent chance at having more than you did today.

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