COLUMN-Recessions? Never consensus, always hiding in plain sight - McGeever
(Repeats item that first ran on Thursday. The opinions expressed here are those of the author, a columnist for Reuters.)
By Jamie McGeever
LONDON, Jan 10 (Reuters) - Fears that the U.S. economy is about to slip into recession have receded quite significantly in the last few days, thanks to payrolls and JayPo.
A red-hot jobs report for December and Fed chief Jerome Powell's signal that, essentially, the central bank has the market's back, have been enough to lift some of the gloom and send Wall Street and bond yields shooting higher again.
The recent tightening in financial conditions has paused, and money markets are cooling on the idea that the Fed may be forced to cut rates this year or next. Risk assets and market sentiment around the world have rebounded too.
For now at least, Wall Street is giving Main Street the benefit of the doubt.
But recessions in the United States and across the developed world are never the consensus forecast among economists, so they always come as a surprise.
As Morgan Stanley Investment Management's Ruchir Sharma notes, professional forecasters have missed every U.S. recession since such records were first kept half a century ago.
In August 2000 the Philadelphia Fed's Survey of Professional Forecasters raised GDP forecasts for the first two quarters of 2001 to 3.0 percent and 2.7 percent, respectively. The recession would start in March.
The Great Recession began in December 2007. In May 2008, having already failed to spot two quarters of negative growth, the survey reported: "The forecasters do not expect a contraction in real GDP in any of the next five quarters."
Part of the problem is 'recency bias': using economic forecasting models that tend to give too much weight to recent events. Groupthink and herd mentality also contribute.
It's easy to see why there's reluctance to predict recession: There's often no concrete evidence for it, even if signs of a slowdown become visible. Growth in pre-recession quarters is often strong, as these two charts from Trading Economics show.
Annual GDP growth topped 5 percent in four consecutive quarters in late 1952 and early 1953, and six months later the economy was shrinking. Similarly, the annual rate of growth was between 4 and 8 percent in most of the quarters over 1972 and 1973 before recession struck.
In the four years comprising the 2004-07 period, the annual growth rate in almost every quarter was pretty much between 2 and 4 percent. Even just before the Great Recession hit, growth was fairly decent, on the surface at least.
Since the first quarter of 2017, the annual rate of growth in each quarter has been rising steadily. On an annualized basis, the U.S. economy grew at a 3.4 percent rate in the third quarter of last year, and the quarterly average over the past two years has been a decent 2.9 percent. No obvious sign of contraction.