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Thursday, November 01, 2007

Are we heading for recession?

I am no macroeconomist, heck I don't even play one on television. However, there is a lot of buzz that we are heading for an economic slowdown and perhaps a recession. I have no prognosis on the general state of the economy, although I know that the state of my personal economy is fairly good, growth is high, debt is manageable, and there are no deficits.

The Philadelphia Fed has it's "Anxious Index" which reflects professional forecaster odds that GDP will decline in each of the next four quarters. The third quarter 2007 data were as follows:

Q4 2007 16.95
Q1 2008 19.14
Q2 2008 18.73
Q3 2008 18.68

Here's a plot of the anxious index over the past thirty years and how it correlated with recession (shaded areas):

The professional forecasters seem to do a pretty good job in predicting a recession one-quarter ahead. They are less accurate in predicting recession in the current quarter - 81% of the forecasters predicted GDP would fall in Q4-2001.

While information is constantly changing, what with the dollar's continued depreciation and the price of oil increasing, I wonder if the buzz about a recession is more smoke than fire.

Yes, I think so...
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