Boring recession calls

Over the past year, I’ve read one pundit after another offer a recession prediction. I’m not impressed.

It’s not that these predictions are necessarily incorrect—a recession might well occur in the near future. It’s that these predictions are useless. What am I supposed to do with the forecast? We already have market forecasts of a wide range of macro indicators.

History suggests that recessions occur every so often and are largely unforecastable. Economists as a group have failed to predict any recent US recession. Last year, lots of economists thought we’d be in a recession by now. Instead, we have the lowest unemployment rate since 1969. (But they also thought we had a “tight money policy” because interest rates were rising. Hmmm . . . please read my new book.)

I’d be much more interested in an unemployment rate forecast. The Fed currently expects the unemployment rate to rise to 4.6% by year end. It would take a recession for that to happen. But a recession could also lead to 7% unemployment, as in the relatively normal 1991 downturn. And yet a 4.6% unemployment rate is much closer to our current situation than it is to 7% unemployment. Simply saying “recession” tells me relatively little about what you expect to happen to the economy. What sort of recession?

Don’t get me wrong. I concede that the recession forecasts will eventually match reality. At some point we will have a recession. Until then, I wish pundits would just keep their mouths shut. I can see the fed funds futures market for myself. I don’t need anyone telling me what they think is likely to happen.



17 Responses to “Boring recession calls”

  1. Gravatar of Ricardo Ricardo
    24. May 2023 at 21:57

    What do you mean you cannot predict a recession? Of course, you can.

    1. Fiscal debt is extremely high.
    2. Debt payments will increase significantly due to the prolonged increased interest rates.
    3. Bank balance sheets are worse than 2008.
    4. House hold spending has sharply declined.
    5. Small business spending has declined.
    6. Geopolitical factors are on the rise.
    7. Dedollarization is quickening, due to crazy sanctions and alternative modes of cross border payments.
    8. Chicago, Baltimore, and SFO are looking like ghost towns. Baltimore can find anyone to lease central property. Ken Griffen just moved Citadel out of Chicago because his employees couldn’t get to work without being robbed by a left wing demothug.

    You think that is going to lead to a booming economy?

    I don’t.

  2. Gravatar of David S David S
    24. May 2023 at 22:33

    Dare I pose a question to Scott about this debt ceiling/technical default debacle? I think Catherine Rampell has been doing the best reporting on this, and although I’m not inclined to trust proclamations by CEO’s, we could be in deep trouble in a few weeks.

    If the government doesn’t pay its bills for a one month period it seems reasonable that there would be economic turmoil that could equal what we saw in 2020. The Fed might be slow on action in this circumstance because they’ll assume a fiscal deal will be reached quickly. They might be underestimating the intractability of the McCarthy junta–which craves a recession to help re-install the orange Jesus.

  3. Gravatar of Michael Rulle Michael Rulle
    25. May 2023 at 03:11

    I am not even sure I can define a recession, let alone forecast one. While I have been “trained” to believe growing deficits as a percent of GDP are obviously bad——what evidence can I provide without using circular reasoning? It’s very hard. For some reason I prefer we spend less and tax less. My spend less rationale is based on my my strong belief (resorting to faith) that centralized planning is a failed method ——particularly when it seems driven by the administrative state.

    But I still can make predictions, For example, I predict any forecast that is based the belief that global warming is dangerous is ludicrous. Why? I have never read an essay that describes the true cost of eliminating fossil fuels.

    Unfortunately for me, it seems unlikely I will ever find out. It’s an age thing.

  4. Gravatar of spencer spencer
    25. May 2023 at 07:04

    Every recession since WWII was both predictable and preventable. But today, since Powell eliminated reserve requirements, it’s a little harder.

    The 6-month rate-of-change in money flows, the volume and velocity of our means-of-payment money supply, became negative in January.

    The 10-month roc (proxy for the real output of goods and services), turns negative in May (numbers not yet released). If the present tightening continues, we will enter a mild recession in the 2nd qtr.

    As Jacob Viner (a leading figure of the Chicago faculty), said: “You don’t belong in this class”.

  5. Gravatar of spencer spencer
    25. May 2023 at 07:55

    At no time has the FED been more incompetent. Canada, the UK, New Zealand, Australia, Sweden, Hong Kong, and now the US have no reserve requirements. The Keynesian economists have achieved their objective, that there is no difference between money and liquid assets.

    The money stock can never be properly managed by any attempt to control the cost of credit. Like I said:

    The only tool, credit control device, at the disposal of the monetary authority in a free capitalistic system through which the volume of money can be properly controlled is legal reserves. The FED will obviously, sometime in the future, lose control of the money stock.
    May 8, 2020. 10:38 AMLink

    “We’ve come a long way in policy tightening and the stance of policy is restrictive and we face uncertainty about the lagged effects of our tightening so far and about the extent of credit tightening from recent banking stresses,” Powell told a Fed conference Friday in Washington.

    We knew the precise “Minskey Moment” of the GFC:
    AS I POSTED: Dec 13 2007 06:55 PM |
    The Commerce Department said retail sales in Oct 2007 increased by 1.2% over Oct 2006, & up a huge 6.3% from Nov 2006.
    10/1/2007,,,,,,,-0.47 * temporary bottom
    11/1/2007,,,,,,, 0.14
    12/1/2007,,,,,,, 0.44
    01/1/2008,,,,,,, 0.59
    02/1/2008,,,,,,, 0.45
    03/1/2008,,,,,,, 0.06
    04/1/2008,,,,,,, 0.04
    05/1/2008,,,,,,, 0.09
    06/1/2008,,,,,,, 0.20
    07/1/2008,,,,,,, 0.32 peak
    08/1/2008,,,,,,, 0.15
    09/1/2008,,,,,,, 0.00
    10/1/2008,,,,,, -0.20 * possible recession
    11/1/2008,,,,,, -0.10 * possible recession
    12/1/2008,,,,,,, 0.10 * possible recession
    RoC trajectory as predicted.

  6. Gravatar of spencer spencer
    25. May 2023 at 08:00

    Fundamentals precede technicals: As I said:
    The 4th qtr. 2019 is not the problem. The 1st qtr. 2020 will be negative.
    Nov 26, 2019. 07:19 PMLink

  7. Gravatar of spencer spencer
    25. May 2023 at 08:21

    Note that Atlanta GDPnow is @ 2.9%

  8. Gravatar of ssumner ssumner
    25. May 2023 at 08:22

    David, I worry that posting on the debt ceiling will make my stupid blog even stupider. Better to stick to more intellectual topics like Trump bashing.

  9. Gravatar of David S David S
    26. May 2023 at 03:34

    Got it. I’ll also restrain myself from comments on Ron DeSantis until he pulls ahead of Trump in the polls. That should be any day now.

  10. Gravatar of ssumner ssumner
    26. May 2023 at 08:19

    Everyone, Today we see near record durable goods orders, rising consumption and above expectation PCE inflation. Where’s that recession we keep being promised?

  11. Gravatar of Student Student
    26. May 2023 at 10:09


    It’s where all these forecasters hide their profits from trading on their predictions… in the land of make believe. Like my buddies bragging about being profitable betting on sports… suddenly when I ask to see their net take… their DraftKings app isn’t loggin in.

  12. Gravatar of Michael S Strohmann Michael S Strohmann
    26. May 2023 at 13:54


    If you aren’t willing to talk about the debt-ceiling, would you answer a question about the best metric to use when discussing the debt?

    In most of the press, I see the absolute value of the US debt mentioned most of the time. Occasionally the debt-to-GDP ratio is mentioned. Both metrics have only been going up (with some minor exception years).

    However, both metrics seem wrong, or at least inadequate, to me. The absolute value gives no context how large the economy or the tax base is. The debt-to-GDP ratio is better but the still doesn’t capture what the government uses to service the debt: tax receipts. It’s servicing the debt that is the real problem.

    So my question, wouldn’t the best metric to use when discussing the debt be interest payments on the debt divided by tax receipts?

    By that metric, things don’t look that bad (roughly 50% of federal tax receipts went to paying interest on the debt at one point in the 80’s!!)

    Right now we sit at about 30% which is not a historical high by any measure (though it went up from 20% in just a year)

  13. Gravatar of ssumner ssumner
    26. May 2023 at 15:16

    Michael, There are multiple factors to consider, including the current debt ratio and the trajectory of spending and taxes going forward.

    BTW, I don’t believe this is accurate:

    “roughly 50% of federal tax receipts went to paying interest on the debt at one point in the 80’s!!”

    That would be about 9% of GDP. Yet the total debt never exceeded 50% of GDP in the 1980s.

    Think about the implications of this:

    “Right now we sit at about 30% which is not a historical high by any measure (though it went up from 20% in just a year)”

    This shows how uncertain these estimate are, and why we need to err on the side of caution (austerity.)

  14. Gravatar of spencer spencer
    28. May 2023 at 03:59

    Hussman on the O/N RRP: “This way, the Fed can keep holding the securities instead of investors and money market funds holding them. It’s as ridiculous and contorted as it sounds.”

  15. Gravatar of spencer spencer
    30. May 2023 at 05:48

    Charges on all debt, public and private sectors, are related to a cumulative figures; and since the multiplier effects of debt expansion on income, the ingredient from which the charges must inevitably be paid, is a non-cumulative figure, it is inevitably that a mathematical time will arrive when further debt expansion is no longer a practical or possible expedient, either to provide full employment or to keep debt charges with tolerable limits.

  16. Gravatar of spencer spencer
    31. May 2023 at 12:41

    re: “Hanke made a new prediction that inflation would be running at between 2% and 5% by year end.” That’s no prediction.

    The trajectory is still as I predicted above.

  17. Gravatar of spencer spencer
    31. May 2023 at 13:35

    Large Time Deposits, All Commercial Banks (LTDACBM027NBOG)

    See: BOE “Working Paper No. 529 – “Banks are not intermediaries of loanable funds —and why this matters” by Zoltan Jakab and Michael Kumhof

    Link Richard Werner:
    Prof. Werner brilliantly explains how the banking system and financial sector really work. – YouTube

    See: “Should Commercial Banks Accept Savings Deposits?” Conference on Savings and Residential Financing 1961 Proceedings, United States Savings and loan league, Chicago, 1961, 42, 43 Dr. Leland J. Pritchard, Ph.D. Economics, Chicago 1933, M.S. Statistics, Syracuse

    It is hard for the average person to believe that banks do not loan out savings or existing deposits – demand or time deposits. However from a system’s vantage point, the DFIs always create the money by making loans to, or buying securities from, the non-bank public.

    This results in a double-bind for the Fed. If it pursues a rather restrictive monetary policy, interest rates tend to rise. This places a damper on the creation of new money but, paradoxically drives existing money out of circulation into the stagnant (gated) savings deposits. In a twinkling, the economy begins to suffer.

    The bank lending channel thus does not represent the credit channel nor the interest rate channel nor intermediated credit.

    Hence, Dr. Philip George’s: “The Riddle of Money Finally Solved”

    ( the ratio of M1 to the sum of 12 months savings ).

    Keynes’ “optical illusion” is that all bank-held savings are frozen.

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