“But the lags”

Here we go again. Today produced another slew of reports that the economy is re-accelerating. Here’s Yahoo:

“Wall Street has had recession on the brain since at least mid-2022,” Dutta wrote. “Analysts have a tendency of falling in love with their forecast, and it is clear some are having trouble letting go even as evidence piles up to the contrary. Strong jobs growth? Late cycle! Rally in US equity markets? We had a big rally in mid-2008 too! None of these arguments stand up to scrutiny.” . . .

Dutta added: “There is only so long one can keep claiming that the recession is just six months away. The statute of limitations has now kicked in. There are several reasons to be upbeat on the US economy. The recession clock has been reset.” . . .

And in looking at the housing and auto markets specifically, we see the crux of the argument, with Dutta writing, “the Fed has been tightening for 18 months already, and it is the cyclical-credit sensitive areas of the economy that have shown improvement of late — housing and autos!”

And the Financial Times:

US consumer confidence rose in June to its highest level since January 2022, as people’s assessments of current and future labour market and business conditions improved.

The consumer confidence index increased to 109.7 in June from 102.5 in May, the Conference Board said on Tuesday. Economists had been expecting a level of 104. A reading of 100 refers to 1985 levels.

And this:

[House] prices in 20 major cities increased 0.9 per cent on a seasonally adjusted basis from March to April, according to the S&P Corelogic Case-Shiller index, surpassing analysts’ expectations for a 0.4 per cent rise. Prices over the preceding 12 months were down 1.7 per cent.

The figures represented further evidence the price decline that started a year ago ended in January . . .

Separately, new home sales rose more than forecast to a 14-month high of 763,000 units. In recent weeks, several homebuilding companies have noted demand for new residences as buyers adjust to higher interest rates.

And this:

New orders for non-defence capital goods excluding aircraft, considered a proxy for business investment, rose by 0.7 per cent in May to $73.9bn in the census bureau’s report on durable goods. That outstripped economists’ expectations of a flat reading.

Job growth has exceeded economists expectation almost every single month since early 2022.

One possibility is that those “long and variable lags” have yet to kick in. Another possibility is that interest rates don’t reflect the stance of monetary policy.

I just wrote a whole book on the topic.



12 Responses to ““But the lags””

  1. Gravatar of spencer spencer
    27. June 2023 at 10:47

    Based on the rate-of-change in our “means-of-payment” money supply, the May #s, there will be no recession this year.

  2. Gravatar of spencer spencer
    27. June 2023 at 11:04

    The Ph.Ds. don’t understand money and central banking.

    Loans/bank credit = demand deposits. Different deposit classifications originate from the shifting of demand deposits created. So, all monetary savings originate within the system.

    And the only way to activate those savings is for their owners, saver-holders, to spend their funds directly, or make investments outside of the commercial banking system.

    Otherwise, all bank-held savings have a zero payments velocity. As the demand for money is falling, savings are being activated. The dis-savings and activation are historic (a reversal of the 70’s).

  3. Gravatar of Ahmed Fares Ahmed Fares
    27. June 2023 at 11:53

    “One possibility is that those “long and variable lags” have yet to kick in.”

    I read that as sarcasm. Scott has an article titled: “Long and Variable LEADS”. Here is the first sentence:

    “In the previous post I explained why the commonly held notion of long and variable lags is a myth.”

    As an aside, I’m not fully convinced. Here in Canada, a report came out that by 2026, all mortgages in Canada will have repriced. In the meantime, those who are still enjoying low mortgage interest rates are happily spending away.

    The danger as I see it that we get a wage-spiral begin before all those mortgages reprice.

    Here’s a link about Canada’s mortgage market. Note the chart in the article.


    Also, a link to Scott’s article I referenced above:


  4. Gravatar of ssumner ssumner
    27. June 2023 at 15:08

    Ahmed, Yes, that was sarcasm.

  5. Gravatar of David S David S
    27. June 2023 at 22:42

    The crowd of idiots who pushed the narrative of the 2022 recession and the 2023 recession need to print a new batch of t-shirts for the 2024 recession.

    Krugman and Yglesias, among others, have noted how the tech-bros on the West Coast are incapable of processing national data because parts of their world are in turmoil. I haven’t seen a positive news story about San Francisco in quite a while. But, to paraphrase Scott: never reason from a price change that’s only in your own neighborhood.

  6. Gravatar of spencer spencer
    28. June 2023 at 07:41

    For “lags” to be applicable, you must anticipate what the FOMC will do. Then you must lag the right attributes. We know the FED doesn’t understand what to do because the FRED database isn’t set up for lags.

    And you must routinely revise the extrapolations. Since it takes a while to complete a lag, we can draw some conclusions even with imperfect data.

    There’s enough history, practice not theory, to make some generalizations about the time series. The trajectory has bottomed out.

  7. Gravatar of Sara Sara
    28. June 2023 at 11:47

    — “The crowd of idiots who pushed the narrative”

    So these are not educated and respectable colleagues expressing their views in the marketplace of ideas, but rather they are “idiots”, and not just idiots but a “crowd of idiots”, “pushing” a narrative.”

    This kind of rhetoric is the sign of someone who has been radicalized. We saw this in the old Soviet Union where people could not have a difference of opinion and draw different conclusions. There were only two classes of people: that is, people who agreed with the state religion, and those who were “idiots” and part of the “crowd” that “pushed”… “narratives” contrary to state opinion. And of course, big brother must protect you from the horrible “crowd”. Trust big brother, because he is your best friend.

    Think what I think, believe what I believe, or join the “crowd” of “idiots”

  8. Gravatar of ssumner ssumner
    28. June 2023 at 12:08

    Hey Sara, Weren’t you one of those claiming we entered a recession in 2022? Still believe that?

  9. Gravatar of spencer spencer
    28. June 2023 at 12:40

    The “demand for money” is simple. Banks don’t lend deposits. Deposits are the result of lending/investing. Hence, all bank-held savings are un-used and un-spent, lost to both consumption and investment, indeed to any type of payment or expenditure. It’s stock vs. flow.

    That’s what Dr. Philip George’s “The Riddle of Money Finally Solved” is all about.

    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

    Alfred Marshall’s cash-balances approach (viz., a schedule of the amounts of money that will be offered at given levels of “P”), is where at times “K” is the reciprocal of Vt, or “K” has the dimension of a “storage period” and “bridges the gaps of transition periods” in Yale Professor Irving Fisher’s model.

  10. Gravatar of spencer spencer
    29. June 2023 at 06:36

    re: “Job growth has exceeded economists expectation almost every single month since early 2022.”

    What do you think of Marcus Nunes: “The intuition is that the higher the “cost of labor”, W, relative to aggregate spending (NGDP) which equals aggregate receipts, the higher unemployment will be.”

  11. Gravatar of William Peden William Peden
    30. June 2023 at 08:52


    It looks like a similar slowdown in NGDP growth to 1984-1985, from low double-digits to high single-figures:


    RGDP growth has slowed in 2021, but that’s what you’d expect given such a substantial deceleration in NGDP. A recession was not out of the question, but the SRAS gods seem to have smiled on the US this time.

  12. Gravatar of spencer spencer
    1. July 2023 at 04:45

    Yeah, Volcker screwed up 3 different times.

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