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the (610), and (161), debt (135), graph (113), that (101), line (82), for (78), #recession (69), trend (60), data (58), years (53), bulge (47), from (46), productivity (44), but (43), with (43), red (43), are (38), this (38), not (36), what (35), gdp (34), blue (33), numbers (30), service (30), you (29), one (28), start (28), household (27), september (26), was (26), 2016 (25), two (25), lines (24), look (24), growth (24), like (24), when (24), projections (23), good (23), three (22), vigor (22), get (22), will (22), about (21), just (21), excel (21), before (21), arthurian (20), than (20), right (20), all (19), out (19), now (19), have (19), see (19), next (19), between (19), can (18), because (18), how (18), only (18), comments (17), those (17), five (17), bulges (17), posted (16), bowl (16), after (16), projection (16), high (16), values (16), date (16), gray (16), private (16), fred (15), year (15), know (15), there (15), should (15), off (14), prediction (14), recessions (14), 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Text of the page (random words):
of that prediction depends on many things no doubt but one of the things it depends on is how well the future paths of public and private debt conform to the paths predicted by excel s trend lines there are things we cannot know like future shocks that divert debt from the predictions such things are beyond the scope of prediction i should say though that on yesterday s graph i see little evidence of shock induced diversion in past data apart from the unknowable the accuracy of the prediction depends on whether the polynomial trend calculation that i used is suited to the behavior of the debt numbers i mean i didn t use the linear trend calculation for example because i don t expect debt to follow a linear path maybe it won t follow the polynomial path either in that case my predicted timing of the next recession would be incorrect i can test for this here s graph 6 from yesterday graph 1 predicting the closing of the current bulge first of all the blue line is the same as the red mirrored about the zero line i will eliminate the blue line to give more space to the red line i ll cut off the years before 1988 because those are pretty boring and i will make the red line gray and make it wider we are left with a graph that shows the three bulges of debt graph 2 a look at three bulges the solid gray line is calculated from data for 1988 to 2016 the dashed gray line is calculated from the polynomial estimate of the future path of debt based on 2008 2016 data below is the same graph from fred modified from yesterday s graph 3 it lacks the estimate of the future path of debt but it shows when recessions occurred graph 3 public debt relative to public private average indexed values recessions restrain the bulges of debt like a tight belt restrains a fat gut returning to the excel graph i show the first half of each bulge in red graph 4 the left half of each bulge is indicated in red i use the word half loosely next i put a trend line on each red section the purpose is to see how each trend line matches the gray half of the bulge obviously the trend line for bulge 3 the rightmost bulge will match perfectly because i used the same trend line yesterday to develop the dashed gray line the other two bulges provide the test if the black trend lines match the gray data for the bulge of the 1990s and the bulge of 2001 2007 then my confidence is increased that the dashed gray line is a good estimate of the future path of debt and if that is the case my confidence is increased that my predicted date of our next recession is also a good estimate so here is the graph with the trend lines graph 5 polynomial trend lines added okay for bulge 1 the leftmost bulge the trend line rides along the bottom edge of the fat gray actuals i d call that trend line good for bulge 3 rightmost the trend line is a perfect match of course because the dashed gray line was modeled on that trend line so this one doesn t count bulge 2 is a bit of a problem the trend line runs higher than the gray half of the bulge but let me show you what happens if i make the red part of bulge 2 longer by one piece of data graph 6 bulge 2 trend line adjusted trend source data now ends at 2005 q3 not 2005 q2 the bulge 2 trend line is now much closer to the actuals in gray still not perfect but pretty good so what does this tell me if i remove even one piece of data from the bulge 3 calculation the predicted date of recession could change substantially or if i do this calculation again after the next release of data the predicted recession date could change substantially i guess nothing can be done about that but i don t think there is anything in the red part of bulge 3 that if i play with data selection would bring the predicted recession date to anywhere within the next three or four years i think the soonest we could have that recession is around 2020 and i could only get that by ignoring data we have i ll stick with yesterday s prediction the excel file posted by the arthurian at 4 03 am 0 comments labels debt bulge sunday september 25 2016 bulges a version of yesterday s graph where both series are quarterly graph 1 public red and private blue debt path comparisons there s a bulge in the 1990s and a bulge expanding since the 2009 recession i want to put a line right down the middle between the red and blue lines like a centerline graph 2 public and private debt paths with path average dashed black i just took the average of the two indexed values it was easier than i expected if i take the black line and subtract it from itself and show it on a graph it will be a nice flat line at the zero level that makes sense right if i take the red line and subtract the black line from it i will keep the basic shape of the red line but transform it down so it runs somewhat above the zero line if i do the same for the blue line it will run a little below the zero line graph 3 indexed public red and private blue debt with their average subtracted out ain t that neat subtracting the average creates symmetry don t ask me how i know how to do this it comes from doing it all the time the text at the top of the graph was taking too much space so i deleted the dashed black line couldn t see it anyway as it was hidden by the horizontal axis i see something in 3 that i couldn t see in the earlier versions of the graph there is a bulge between the 2001 and 2009 recessions so that makes three bulges not two and if you get a close up of the graph you can see a bulge between the 1974 and 1980 recessions and a little one between the 1980 and 82 recessions lots of bulges then and what i said yesterday recessions come when the bulges close is confirmed since it appears the bulge on graph 3 is not going to close any time soon i don t think we ll have a recession for another five years at least probably longer upon close inspection i see no bulges before 1974 in other words the bulge doesn t close for the 1970 recession but the data inexplicably only goes back to 1966 so i can t talk about recessions before 1970 the bulge doesn t close for the 1991 recession either but i might be able to explain that one private debt growth slowed a lot between 1985 and 1992 this unusual debt behavior is probably somehow related to the unusual bulge behavior maybe i ll look into that some other time for now i must point out the obvious the future is not guaranteed but it seems to me that the bulge we are in right now is a bulge that will close with a recession like the two bulges before it and the non bulge that ended in 1991 and earlier bulges going back to the 1974 recession i assume the current bulge will close in other words i expect the blue line on graph 3 over the next several years to continue curving upward making the sort of bowl shape that we have talked about before i also expect the red line over the next several years to continue curving downward developing an inverted bowl and i expect the two bowls coming together to pinch off economic growth and give us a recession that s just imagery i m not making a claim about causal relations here due to these expectations on my part with some confidence i predict that our next recession will occur just as the two bowls are meeting therefore i want to go to excel and use second order polynomial trends my bowl maker to determine when the public and private debt trends will meet pinching off the bowl we are in right now with a little work in excel i can put a date on the start of our next recession i know they re symmetrical but i did em both anyway graph 4 future path of public debt for graph 3 graph 5 future path of private debt for graph 3 both these trends are based on data from 2008 q2 to 2016 q1 so i added those two estimates of future debt to a version of graph 3 in excel added a bunch of years to the right end of the graph and deleted some years from the left end to make room here s what i got graph 6 predicting the closing of the current bulge wow that s a big bulge okay so around 2024 this graph of debt relations predicts our next recession to start some time around 2024 ridiculous you think maybe but let me try to talk you out of that the dashed lines meet in the first half of 2024 but the recession might start a year or two before the lines actually cross so 2022 or 2023 perhaps 2022 is only six years from now maybe that s a less ridiculous prediction that ignores years gone by our last recession ended in mid 2009 according to nber dates at fred seven years ago and i ve read articles written by people apparently hungering for recession suggesting that after seven years of growth we are already due for another recession it could be but the bulge on the graph screams disagreement and besides the claim that we ve just finished up seven years of growth and now a recession is due it seems to me that s the ridiculous claim growth was what half what it should have been so don t call it seven years call it three and a half add six or seven years more to that and we get an expansion nominally ten years in length know what the expansion of the 1990s lasted ten years it s not a ridiculous number i want to say no recession before 2022 i just don t want to jinx it the excel file posted by the arthurian at 4 00 am 1 comments labels debt bulge saturday september 24 2016 for its remarkable symmetry private non financial debt blue and gross federal debt red both indexed to 1975 https fred stlouisfed org graph g 7omk posted by the arthurian at 4 00 am 2 comments labels debt bulge friday september 23 2016 a long run rate of roughly 2 per year he says problems unsolved and a nation divided pdf between the 1970s and the 1990s the u s economy created private sector jobs at a long run rate of roughly 2 per year decade after decade here s my graph graph 1 decade averages of annual growth rates payems at fred you can get roughly 2 if you average the three decades together the 70s and 80s and 90s but the only long run rate on the graph is downhill the graph does not show roughly 2 per year decade after decade those words indicate a level trend but the job growth rate began to decline around 2001 they add taking liberties with the facts at harvard the excel file posted by the arthurian at 4 00 am 0 comments thursday september 22 2016 those problems remain unsolved he says harvard professor identifies the worst nightmare in america right now despite the hope of finding reasons for optimism the recovery remains slow and uneven largely because america s competitiveness problems took root long before the downturn porter writes since those problems remain unsolved it should not be surprising that the average annual economic growth 1 6 during the current recovery is slower than during any recovery since the late 1940s those problems remain unsolved so porter then would not expect to see economic vigor appear out of nowhere say two years hence this is good if i m wrong about vigor maybe porter is right if i m right about vigor porter is definitely wrong posted by the arthurian at 4 00 am 0 comments wednesday september 21 2016 employment and productivity employment relative to productivity when it s going up employment is growing faster than productivity when it s going down employment is growing slower than productivity posted by the arthurian at 4 00 am 1 comments tuesday september 20 2016 when does productivity go high almost always during recessions almost no other time output per hour relative to output posted by the arthurian at 4 00 am 0 comments monday september 19 2016 productivity without recession effects productivity goes high after a recession after every recession graph 1 productivity percent change from year ago that s pretty interesting until you notice how reliable it is i mean what does it tell us it tells us if you want productivity to go up have a recession great so when we come out of the recession productivity goes high for a moment and then drops way low again so what happens if we finally solve the economic problem and never have another recession low productivity forever counting recession effect highs produces impressive but questionable productivity numbers this graph from bls says 2000 2007 had the best productivity growth since 1973 graph 2 productivity as bls sees it but the 2001 2007 business cycle was by far the weakest of the postwar period i think the bls high number for 2000 2007 is a result of counting the recession effect highs sometimes i wonder what productivity would look like if we could cut off those recession effect highs and get a better feel for productivity in the good years but how would you decide which spikes to cut off i mean sometimes there is only one spike and sometimes there are two in quick succession should we count the two as one spike and cut them both off what if it s more than two spikes should we cut them all off obviously we need a better plan if you want to measure productivity in the good years you have to know what you mean by good years here s a thought let s look at productivity in the context of debt service this next graph shows productivity as percent change not like graph 1 together with household debt service as you know i find a relation between the two low debt service implies low productivity rising debt service implies rising productivity graph 3 productivity in the context of debt service i marked up the graph to show three bottoms of the debt service bowl along with productivity at the bottom graph 4 productivity at the bottom of the debt service bowl consider one of the three consider the economy since the crisis these were not good years during the recession not good during the remarkable drop in debt service not good how about all the while debt service has been at bottom not good nobody else puts it in terms of debt service but this is what everyone has been saying my definition of not good years is the time of recession plus the years after it when debt service is falling or running low the good years then begin when debt service is rising from the bottom and the good years continue to the start of recession having what looks like a workable definition i downloaded the fred data for graph 3 and set to work brought the data in to excel went back to fred for a recession indicator added columns for bowl drop for times when debt service is falling and bowl bottom for times it is running low i ll just put a 1 in those columns on the rows where debt service is falling or running low i made a new column to total up the recession drop and bottom columns i figure i ll graph the totals column that way i can just put 1 in the cells for bad years and watch the graph change while i m working instead of showing recession bars on my graph i want to show bad years bars that s what the totals column is for my bars will be wider than fred s recession bars because i m including the drop and bottom years to make this all work i had to dig up the old recession_bars pdf from the st louis fed but i needed to use the right axi...
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