What recession? July job’s report destroys expectations

[Benjamin Frank]

Suddenly recessions are defined by jobs reports and unemployment rate instead of GDP. Labor force participation rate, though... that's not a thing.

Three points:

One

On the flip side, if you look at GDP in 2000 and 2001, there never was two quarters of negative economic growth during that period.

This is from FRED Real GDP per quarter
https://fred.stlouisfed.org/series/GDPC1

1st quarter, 2000: 12,935.252
2nd quarter 2000: 13,170.749
3rd quarter 2000: 13,183.890
4th quarter 2000: 13,262.250
1st quarter 2001: 13,219.251
2nd quarter 2001: 13,301.394
3rd quarter 2001: 13,248.142
4th quarter 2001: 13,284.881
1st quarter 2002: 13,394.910

So, GDP declined in the first and third quarter of 2001 after slowing in the 3rd quarter of 2000. Based on this, and other factors, the NBER determined that there was a recession sometime during 2000 and 2001 even though there never was two consecutive quarters of negative economic growth.

Because of the NBER determination, everybody in the media refers to the recession of 2000 and 2001, and because of them, every person refers to the recession of 2000 and 2001. Yet, using this coloquial definition of 'two consecutive quarters of negative economic growth' there never was a recession.

The point being: That the NBER determines when a recession occurs is not 'sudden.'  Also, if you use the coloquial definition of a recession, there was no recession from around 1991 to sometime in 2007, or 16 years of consecutive yearly real economic growth. I think that is good evidence, that barring a shock like Covid, that the Federal Reserve generally does its job well.

I hope some people have a better understanding from this little historical economic lesson.

[Benjamin Frank]

It seems with midterms just around the corner Biden is finally starting to get it into gear. Has a ways to go before I'd say I approve, but this is good news.

Honestly, Dark Brandon has always seemed to have luck on his side and always seems to be underestimated. He was left for dead after Iowa and New Hampshire only to win the primaries in a landslide. How quickly we forget...

Can someone explain to me the lower taxes argument ? If lower taxes produces a better economies; than why isn't Arkansas great ? Or Lousiana ?

Texas, Georgia, must have something else to attract companies right ?

Two

States can compete in many different ways. Corporations themselves in surveys say they use about 20 different screens when deciding where to invest but obviously many of those have nothing to do with the government directly.

States can compete through various low tax/regulation regimes, or through higher tax regimes that promote better education and/or other better qualities of life that encourage highly skilled people to move to a state. Or, through some balance of the two. Urban studies professor Richard Florida has written extensively on this.

Tennesse, after years of promoting advanced education has promoted itself as a low tax and low wage state and has succeeded in bringing many companies looking for that to their state. What should be obvious though, is that if every state decided to compete on that model, the 'low wage and low tax' advantage for this one state would be lost.

There is only an advantage if only a handful of states follow that model. If more states try to adapt a low tax, wage and regulation model, that only leads to what is often referred to as a 'race to the bottom.'

I hope some people have a better understanding from this little economic lesson on diminishing returns.

[Benjamin Frank]

Three

I agree the economy is unsettled. I don't really follow monthly economic data, so I don't know where these new jobs are being added, but it seems obvious to me that for supply chains to open up again, it's going to take more workers in order to do that.

So, if these new workers are clearing up the bottlenecks, this should actually result in lower inflation going forward.

Because economic decisions often leads to contrary effects: on the one hand, a lower unemployment rate will likely lead to higher wage demands and higher wages, on the other hand, if these workers are being hired to clean up supply chain bottlenecks, it will likely result in increased supply and lower inflation.  

So, this is why, for instance, it makes sense for the Federal Reserve to not raise interest rates too quickly. If faster rising interest rates lead to layoffs in firms that are helping to increase supply thereby lowering inflation, that would have negative inflationary effects in the short term until the demand destruction of a significant rise in interest rates in one go fully worked through the economy.

This reminds me of an episode of Yes, Minister, where Minister Hacker called for greater efficiencies in the civil service and was later told by Sir Humphrey that the civil service planned to hire 20,000 new civil servants to find and implement efficiencies.

When Minister Hacker complained, Sir Humphrey told him that if he wanted to cancel this efficiency program, he could claim that the civil service had just laid off 20,000 civil servants.

I hope some people have a better understanding of the complexities of the economy.