On the previous blog over on blogspot, I made numerous comments about an upcoming recession.

Guess what – it’s here.  Just not officially, not yet.  I’m betting that once the Official word gets figured, it’ll set the date sometime between July and September of 2006.

First, a re-examination of what constitutes a recession.

The official word comes from the NBER.  Though they’ve several elements to the calculation, the basic one is two consecutive quarters of negative growth in the GDP.  And I’m saying it’s here because we’ve already experienced the first quarter.

What?  It was 1.6% growth?  Wellllll, no.

One large error has already been identified – almost every economic blog going pointed this out.  Specifically, all the auto manufacturers experienced a decline in production, but according to the GDP details light trucks and autos INCREASED sales — by a whopping 26%.  Cut that to zero and that 1.6 becomes 0.9.  And that’s only the start.

Additional factors include a housing adjustment factor that overstates it as well (claims housing numbers are growing vs the National Association of Realtor’s numbers that show flat to slight declines) and a historic tendency (as in almost all for the past few years) for the first release of GDP numbers to be revised downward for the next release.  And again for the next, and sometimes for the final.  The end number has frequently (more than 8 of the last ten) ended up over a full point – closer to a point and a half – below the first release number.  This in combination with the aforementioned truck sales number means, well…

It means that we probably experienced negative GDP growth in the third quarter of 2006.  And there is nothing on the horizon to indicate the fourth quarter will do better.


One thought on “Recession

  1. Most of the real estate forecasts I’ve seen are too optimistic. A staggering percentage–more than 50 percent–of loans over the past two years in high-end markets have been either zero-interest or five-year adjustable ARMS that are due to hit for refinancing over the next few years. With the downward trend in prices, many owners will find themselves unable to refinance. And then it’s either sell–and supply-and-demand pushes prices lower still–or go through foreclosure, which also ratchets the market downwards. And in the Los Angeles market, the typical cost of servicing mortgage debt is now 45 percent of gross income…the water is right up to the gunnels and it won’t take much for the boats to start capsizing.

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