Sunday, March 15, 2009

Macroeconomic Advisers say Q1 GDP tracking for a -5.0% annualized loss

Any day now, Macroeconomic Advisers (MA) will report their preliminary estimate for GDP in the month of January. Meanwhile, as of Friday they were forecasting that for all of Q1 2009 we would see an annualized decline of -5.0%. Note that an annualized rate is simply four times the actual rate for the quarter, so an annualized decline of -5.0% would indicate an actual quarterly decline of -1.25%.

The government does not publish GDP data at a monthly level, but the NBER Business Cycle Dating Committee (NBER BCDC) says that they refer to sources such as Macroeconomic Advisers (MA) and their MGDP data series.

If the NBER BCDC is the definitive expert on marking of recessions, MA is the definitive expert on measuring real GDP at the monthly level with their MGDP data series.

My own hunch is that the economy needs to "burn off" about 5% to 10% of the excess growth over the fast five years that was due to the offering of large amounts of unrealistic credit and exotic Wall Street financial instruments. Even "solid" firms may suffer to some extent, to the extent that they may have misguidedly become dependent on these unsustainable forms of credit. The government speaks of "getting banks lending again", but that most certainly does not mean that any (or at least most) of the unsustainable sources of credit will be back in operation again. Many of the firms that were based too-heavily on unsustainable credit will simply vanish and others will shrink dramatically to size themselves based on access to sustainable credit and much more realistic pricing of risk. In any case, this "credit adjustment" will require GDP to shrink substantially in the near term, regardless of any longer-term growth that results from stimulus that seeds sustainable development.

-- Jack Krupansky

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