How we will know when a recession is coming?

Out of curiosity, how reliable are all of the metrics we use for measuring economic health? For instance, how reliable is the unemployment rate when it is a highly political number with lots of incentives to misrepresent (ie the chronically unemployed are excluded from the count)? Beyond that, how much are these indicators just fudged or straight-up lied about?<p>Everybody is happy to agree with me when I say that China fudges their numbers, but when I say other countries are capable of the same thing they tell me I&#x27;m crazy. I am not an expert on China by any means, and I don&#x27;t believe other countries report their economic health in the same way; but I also don&#x27;t buy that everything the US and other western countries say is gospel.

Will the US economy experience a recession in the next...<p>100 years? Yes!!!!<p>50 years? Yes!!!<p>25 years? Yes!!<p>12.5 years? Yes!<p>6.25 years? Yes<p>3.125 years? Yes?<p>1.5625 years? Maybe<p>.78125 years? Maybe?<p>.390625 years? No?<p>0.1953125 years? No<p>0.09765625 years? No!

This is a really interesting metric but I&#x27;m going to argue that it doesn&#x27;t say that much about our current situation given that our current unemployment numbers are highly skewed due to a strong shift towards low quality part time work and a large number of people opting out of the labor search (who are not considered unemployed in these statistics).<p>I could see an argument made that given that this is statistic is relative to itself and just tracks movement it shouldn&#x27;t matter if things are different now than in the past but it feels to me like the nature of this metric is so different now than it was in the past that it&#x27;s just not an apples to apples comparison.

&gt; The Great Recession officially ended in June of 2009<p>As a &quot;millennial&quot; who graduated in 2008, I seriously hate reading shit like this. Maybe it recovered for the Boomer&#x27;s pension funds and 401k&#x27;s, but it took many of my friends over a decade to find work equal to their qualifications. They&#x27;re only JUST NOW starting to get payed what they deserve (PHDs, MBAs, and Masters degree holders).

No economic numbers are reliable due to reflexivity - &quot;reliable numbers&quot; become inputs for policy makers and market participants, which drive changes in the economy that affect the previously &quot;reliable numbers&quot;.<p>George Soros wrote extensive literature on the topic. He called his fund (second best performing hedge fund in history) the Quantum Fund because, according to him, true nature of economic reality is unknowable to humans. As in it is genuinely impossible to know, regardless of the amount of efforts.<p>Example: mortgage credit decisions depend on people&#x27;s earnings and collateral value. Problem? Both earnings (salaries) and the collateral value (home prices) depend on the amount of credit in the system.<p>The economy, being a subset of psychology&#x2F;sociology, cannot be understood via normal science because the level of understanding is not independent from the actual rules at work. I.e. the more we understand the different-er we behave. Unlike atoms, which don&#x27;t care what humans think and just go about their own business.

The current odds of a recession are the same as just before the big recession of 2008.<p>Also, concerningly, the real estate market is just as leveraged and bubbled as then as well.<p><a href="https:&#x2F;&#x2F;www.forbes.com&#x2F;sites&#x2F;jessecolombo&#x2F;2019&#x2F;06&#x2F;30&#x2F;current-u-s-recession-odds-are-the-same-as-during-the-big-short-heyday&#x2F;#10258ec1708d" rel="nofollow">https:&#x2F;&#x2F;www.forbes.com&#x2F;sites&#x2F;jessecolombo&#x2F;2019&#x2F;06&#x2F;30&#x2F;current...</a>

It baffles me how financial analysts can try to answer such a question by only focusing on the domestic economy. Economies are so interconnected, the next recession is likely to be a global recession. Alarm bells are currently ringing all over the world, but the U.S. is isolated to some extent due to its currency status and relatively stable markets.<p>It&#x27;s like standing in a room on the top floor of the Titanic and measuring whether the boat is sinking by measuring the water level on the floor in your room. Meanwhile, if water is getting into the rooms below you...

<i>&quot;The indicator has both correctly signaled a recession 4–5 months following the beginning of the recession and has virtually never called a recession incorrectly since 1970.&#x27;</i><p>This is more like &quot;how will we know when a recession has already started without waiting for a down GDP for two quarters.&quot; That&#x27;s 6 months in. This signal lets you know 4-5 months in. Not exactly a leading indicator.

Why does it have to be just a recession with rebound a few years later? I’d argue many are thinking too positive following 2008 where everything will go back to normal and prices will rally to all time highs. The US economy almost blew up into a full blown depression in 2008. The Fed swooped in to save the day. Can the Fed do that again indefinitely with not only US but potential problems worldwide?<p>The global economy is reaching uncharted territory now with the amount of debt and negative interest rates.<p>Maybe a depression like 1930’s are a relic of the past once we decoupled from the gold standard. Central banks today have full power to devalue currency indefinitely in order to maintain the financial status quo.

For fun, I put together <a href="http:&#x2F;&#x2F;isitrecession.com" rel="nofollow">http:&#x2F;&#x2F;isitrecession.com</a>, in the spirit of <a href="https:&#x2F;&#x2F;isitchristmas.com" rel="nofollow">https:&#x2F;&#x2F;isitchristmas.com</a><p>It just shows the inverted yield curve, pulling down data from the US treasury everyday, and subtracting the 1 year from the 10 year interest rate.

We don&#x27;t.<p>Anyone with any real predictive power over that question had a license to print money

Interesting and makes sense for someone someone like me who&#x27;s a dummy for macroeconomics. Unemployed people can&#x27;t afford to spend too much, thus businesses revenue decreases, they lay off more people and it becomes a negative feedback loop.<p>I&#x27;ve also seen this VOX documentary about the &quot;yield curve&quot; which also famous for predicting recessions.<p><a href="https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=xiiHjrewXNI" rel="nofollow">https:&#x2F;&#x2F;www.youtube.com&#x2F;watch?v=xiiHjrewXNI</a>

So, I make no claims as to its accuracy, I&#x27;m just putting this out as food for thought, but here&#x27;s another possible metric: <a href="https:&#x2F;&#x2F;trends.google.com&#x2F;trends&#x2F;explore?date=all&amp;geo=US&amp;q=recession" rel="nofollow">https:&#x2F;&#x2F;trends.google.com&#x2F;trends&#x2F;explore?date=all&amp;geo=US&amp;q=r...</a>

in one of Buckminster Fuller&#x27;s books (Critical Path IIRC) he recalls an indicator of the Great Depression being half-finished housing developments - rows and rows of houses, covered in tarpaulin, plumbing exposed like a skeleton, abandoned. I recalled this vivid description later during the mortgage crisis of 2008.

“Recession is when your neighbor loses his job. Depression is when you lose yours.&quot; --Ronald Reagan

Maybe I&#x27;m just too cynical, but we know that it&#x27;ll happen just before the next Presidential election. If the party in power can&#x27;t get enough buy-in from enough influential people.

All these indicators are guesses at best, but out of curiosity I checked the current Bureau of Labor Statistics numbers [1]:<p>Prior 12 months lowest unemployment rate: 3.6% (in April &amp; May 2019).<p>Prior 3 months average (June&#x2F;July&#x2F;August 2019): 3.7%.<p>So according to this metric we are not in a recession.<p>[1]: <a href="https:&#x2F;&#x2F;www.bls.gov&#x2F;web&#x2F;empsit&#x2F;cpseea03.htm" rel="nofollow">https:&#x2F;&#x2F;www.bls.gov&#x2F;web&#x2F;empsit&#x2F;cpseea03.htm</a>

Very recent report from the Bureau of Labor Statistics. Number of employed Americans is at an all-time high, participation rate is not:<p><a href="https:&#x2F;&#x2F;www.bls.gov&#x2F;web&#x2F;empsit&#x2F;cps_charts.pdf" rel="nofollow">https:&#x2F;&#x2F;www.bls.gov&#x2F;web&#x2F;empsit&#x2F;cps_charts.pdf</a><p>For example, slide 15, percentage of the unemployed deemed as long term unemployed declined from 45% to 20% from 2012 - 2019.

People have been calling for a recession&#x2F;big market correction since around 2012. At some point an analyst will be right and then they’ll hold the throne of “this analyst predicted the last recession... hear what they think now” until the cycle repeats itself again.<p>Those that have been around a while know this whole story plays out on a loop over and over and over :-)

The transportation sector seems like a pretty good indicator. Maybe a dip in the number of semi&#x27;s in the road over time?

On topic, and well outside of my ability to know how seriously to take it: <a href="https:&#x2F;&#x2F;johnhcochrane.blogspot.com&#x2F;2019&#x2F;09&#x2F;more-on-low-long-term-interest-rates.html" rel="nofollow">https:&#x2F;&#x2F;johnhcochrane.blogspot.com&#x2F;2019&#x2F;09&#x2F;more-on-low-long-...</a>.

Maybe the recession will never come?<p>What are we going to do now without the recession?<p>In a way, that thing was a solution.

Just looking at shifts in the national unemployment rate will never render an accurate assessment of the labor market. It simply overlooks how, why, and which folks are leaving jobs or accurately reflect the under-employed.

You won&#x27;t. If you could, you could make an enormous profit off this knowledge.

...when student loan delinquency increases and consumer spending decreases

I worry a lot less about a market correction then I do a political &quot;correction&quot; affecting the markets. We&#x27;re so polarized. You can sense a desperation among those who took out an exceptionally high amount of student debt and have no realistic way of repaying it. Risk of medical bankruptcy is also extremely high. Among other things, these types of occurrences make people desperate, and desperate people are willing to try desperate solutions, such as radical wealth redistribution, or government&#x2F;centrally planned economies (socialism), or ...? Ask yourself how 50% of the country might feel if we removed from power (either constitutionally or other means) our democratically elected president?

Massive (last I checked 13 trillion and rising) negative yields government bonds market all with. Lowering interest rates twice already, heading to another one next week (rumor). Instead of bailing out the homeowners in 2008, they bailed out the banks. &quot;Too big to fail.&quot; Think about this stuff people. Nothing has changed, nothing ever changes, Governments are incentivized by the market to steal money from the working class to protect the stability of an economy. It&#x27;s simple: SLOWLY separate money and state and we don&#x27;t have to worry about manipulation of the money supply to &quot;protect us.&quot; Buy Bitcoin.

I watched a Ted talk sometime ago about how they&#x27;ve discovered a method to genetically modify mosquitoes to eradicate entire populations of mosquitoes from an area (I think it was it made them mos babies die due to genetic engineering).<p>I couldn&#x27;t find it now but it seemed like a massive success at the time almost eliminating all mosquitoes from the a city in Brazil (iirc).<p>Anyone know what happened to it? If that were to come to fruition than a lot of disease in addition to malaria like chikungunya, dengue, etc will be cured too.