There’s no such thing as “rolling recessions”

You predicted a recession and it didn’t happen? You are about to be interviewed by CNBC? Have no fear, you can always claim that there has been a “rolling recession”. It’s like a get out of jail free card.

Rolling recessions do not exist. The fact that weakness in housing was followed by weakness in manufacturing and then a few layoffs in tech doesn’t mean a thing if the overall economy continues booming. Claims of rolling recessions are used merely as an excuse for failed macroeconomic predictions that flowed from bad models. Here are a couple reasons why they don’t exist:

1. It’s true that recessions often involve fairly modest reductions in GDP, say 2% or 3%. But that does not imply that a similar decline in a single sector is equally significant. Individual sectors are far more volatile that overall GDP, which aggregates all sectors of the economy.

Consider the following analogy. You meet two children, one of which is 3 inches taller than the other. Is that a significant difference? Does that sort of difference prove that one must be considerably older than the other? Not really, height varies a great deal from one person to the next. In contrast, if told that a class of 30 students had an average height that was 3 inches higher than another class of 30 students in the same school, you can be pretty confident that the taller class is in a higher grade. The law of large numbers is quite powerful.

Thus while a 2% or 3% fall in GDP is quite important, a 2% or 3% fall in housing or manufacturing is hardly worth commenting on. Those sectors are far more volatile than GDP. There is no sign of a significant fall in either construction employment or manufacturing employment.

2. Recessions are an aggregate phenomenon, and hence are quite distinct from economic shocks that only impact a single sector. Recessions are distinctive because they are the product of shocks that have broad effects across the entire economy. Even in an economy that is doing fine, some sectors will grow while others contract. To call this natural churn a “rolling recession” is to drain all meaning from the term “recession”.

It’s like when people talk about “eggflation”. Rising egg prices are certainly an interesting phenomenon, but they have nothing to do with the sort of inflation associated with a general depreciation in the purchasing power of money. (Except that portion of rising egg prices that reflect a rise in the overall CPI.)

Stop talking about “rolling recessions” and just admit that your 2022 recession call was wrong!

And please, when we finally do get a recession, don’t claim, “See, I called it.”

PS. According to Bloomberg, tech’s rolling recession is now over:

Thanks to AI, San Francisco’s Tech Companies Are Hiring Again

PPS. Paul Krugman has a column that discusses the way that tech entrepreneurs like Elon Musk confuse their own sector with the aggregate economy. Here are a few typical Musk tweets:

We may well have a recession. But no, a recession was not “already here” in April.

PPPS. And someone should tell Musk that when he’s wrong the gracious thing to do is admit the mistake, not attack the messenger:



12 Responses to “There’s no such thing as “rolling recessions””

  1. Gravatar of Michael Rulle Michael Rulle
    8. July 2023 at 04:42

    I would have thought it obvious that there is no such thing as rolling recessions, (as defined by ideas like “single sector declines” are evidence of “rolling recession”s.)

    I read less than I used to and tend to headline skim. But as you state this is an utterly ridiculous concept. About 1-2 years ago, it seemed that we were not in a recession and my belief was we were not heading into one. I will not claim some clever thinking—duh—only my observation that equity markets were rising and economic numbers looked good—-at least based on what I believed I was taught.

    If I were guessing on an “explanation”——we cannot forecast recessions ——to me it’s like forecasting stock prices. We can observe numbers (maybe government cannot count—-precisely (BUSH senior last 2 quarters were changed to growth after the election)

    I think that economists used to have similar ways of thinking. Now it seems they do not.

    In case you care or are wondering, I still know nothing. But for some paradoxical reasons it makes me more comfortable and —-bizarrely for reasons that make no sense to me, I now ride on some odd intuition.

  2. Gravatar of Michael Rulle Michael Rulle
    8. July 2023 at 05:58

    I forget the name of the comedy where the world radically increases in stupidity—-starring one of the Wilson Bros.

    But that is what is happening——or so it seems—-actually I can’t get it out of my head ——it seems so obvious.

    The 24 election will be the worst and craziest in “ever”?. It’s not just the US—the whole world is getting dumber.

    That movie ended optimistically——-ironic. So just because we are truly stupid and getting worse——that is not necessarily bad.

  3. Gravatar of John Hall John Hall
    8. July 2023 at 07:04

    You don’t really define rolling recessions in the text.

    My understanding, coming from people like Nancy Lazar from Cornerstone Macro, was similar to what Ed Leamer described in his book Macroeconomic Patterns and Stories. He shows how some sectors perform in and around recessions. The typical pattern being that more interest rate sensitive parts of the economy tend to turn down prior to the recession and fall more significantly. So you could observe housing, business construction, and other equipment and durables spending tending to start falling in that order before the recession. I thought that’s what people meant by rolling recession.

  4. Gravatar of ssumner ssumner
    8. July 2023 at 07:12

    John, Today, people are simply using it as an excuse for failed predictions. They claim there really was a “rolling recession.”

    By the way, during most recessions almost all sectors react at roughly the same time.

  5. Gravatar of Sara Sara
    8. July 2023 at 11:11

    “And someone should tell Musk that when he’s wrong the gracious thing to do is admit the mistake, not attack the messenger:”

    You mean like when you double down on packing the courts because they didn’t centralize abortion laws? Or when you double down on the fake Russian collusion hoax, call unarmed Jan 6th buffoons “terrorists”, advocate a one-world-NATO, call Trump Hitler, wrongly suggest the virus originated in a Thai bat cave, imply TikTok is a sweet little program, and oddly propose that Russia’s taking over the world. Or how about when you wrongly call RFJ Jr. antivaxx, as if proposing vaccine safety measures is antivaxx. Did you apologize yet? Or did you attack the messenger?

    Perhaps you should apply this principle to yourself, before you ask others to apply it.

    You were also wrong about inflation which you said would be “transitory”, based on your own model, so that is another wrong prediction from your end, of which there are many. Did you apologize, or did you attack the messenger?

    But of course it’s always easier to point the finger than to look in the mirror.

  6. Gravatar of ssumner ssumner
    8. July 2023 at 11:24

    Sara, LOL, I did call Kennedy an anti-vaxxer. As for the rest, you have a vivid imagination.

    Can you name anyone on the entire internet who’s more opposed to court packing than I am?

  7. Gravatar of Solon of the East Solon of the East
    8. July 2023 at 15:54

    The US macro economy, presently and during the Great Depression, are grounds that have been spaded over pretty heavily.

    I wish Scott Sumner would review Bank Indonesia policy during the pandemic and to the present.

    Google searches seem to turn up little or no coverage of an interesting response by a Central Bank.

  8. Gravatar of David S David S
    8. July 2023 at 23:36

    Most troubling to the Elon Musk/tech bro/Wall Street set is the “Richcession” that is making it hard for them to properly staff their yachts or keep up with the landscaping at their multiple estates.

    A certain amount of churn in businesses and markets is necessary in a healthy economy–just ask Joe Schumpeter. I have no sympathy for Elon Musk, but I do have concerns about persistent geographic imbalances. Rural areas of the U.S. have been in a state of relative decline for decades. This has had enormous consequences for property values and political conditions. I’ve lost track of how many dilapidated houses and barns in western Massachusetts or central N.H. have enormous Trump signs. It reflects a generational desperation that seems to have no rational solution.

  9. Gravatar of foosion foosion
    9. July 2023 at 09:38

    “Can you name anyone on the entire internet who’s more opposed to court packing than I am?”

    The political party which gamed the court composition to its liking and doesn’t want to see its work undone?

    If not obvious, compare Garland (we can’t possibly consider a nomination in the last year of a president’s term) to Barrett (we didn’t mean for that to apply to a republican nominee).

  10. Gravatar of ssumner ssumner
    9. July 2023 at 10:47

    Foosion, In other words—no. No one on the internet is more opposed to court packing.

  11. Gravatar of Ricardo Ricardo
    9. July 2023 at 11:11

    Elon is right. The numbers are manipulated.

    USSR did the same thing, as does the CCP. I mean, try being a local apparatchik in the USSR or the CCP and report bad numbers to the head office. See how long you remain in the job and away from a gulag. They all manipulate the data because they have to, otherwise they lose their career.

    Biden and the democrats think the same way. They are utilitarian’s, and if lying is all it takes to get to their “end” which is a one party state, then the means to acquiring those ends don’t matter.

    The economy isn’t doing well, and almost everyone who works for a living understands that. You and Sara might be rich, and so maybe it doesn’t affect you, and you can argue about your chandeliers and the size of a ceiling, but the rest of us know the economy isn’t doing well. Especially, if you own a small business. If you are just a paper pusher or making a windfall from pharma stocks then maybe it all seems wonderful, but it’s not wonderful to those on the ground.

  12. Gravatar of Ray Lopez Ray Lopez
    9. July 2023 at 11:58

    Strawman by Sumner. The real (rhetorical) question is “do expectations matter given everybody was calling for a recession, and there’s not one? If so, what does that say about Sumners NGDP monetarist model, which is based on expectations? It invalidates it.”

    SS: “Recessions are an aggregate phenomenon” – Austrian economists would disagree with you.

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