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Wednesday, July 15, 2009

St. Louis Consulting Firm Declares Recession Over! Or Does It???

Posted By on Wed, Jul 15, 2009 at 3:05 PM

You may have noticed the article Slate ran yesterday afternoon entitled "The recession is over! (Technically.)" You may have ignored the parenthetical and burst into a joyous rendition of "Happy Days Are Here Again". Or you may have become suspicious of the term "technical," guessing that a "technical" end to the recession will not necessarily mean more money in your own pocket.

The bearer of these glad tidings, it turns out, is none other than Macroeconomics Advisers, LLC, a consulting firm that, despite the British spelling of its name, is located right here in St. Louis. Specifically, the Clayton metropolitan area. Slate declares it one of "the best and most objective forecasters, who are not connected to investment banks or to the CNBC noise machine."

We pause for a moment of obligatory St. Louis chest-thumping. (But oh, Lord, along with the All-Star Game, what a week it's been!)

OK, now that that's over with -- what do the Macroeconomics Advisers know that the rest of us don't?

Well, one thing they know is how to rig their web site so it only works in Internet Explorer.

But what about the economics?

  • Macroeconmics Advisers
  • Herzon
"We're forecasting positive GDP growth in the third quarter, contrasted with previous negative growth," explains Ben Herzon, an economist with Macroeconomics Advisers.

GDP stands for "Gross Domestic Product" and is a measure of how much money a nation takes in over a certain amount of time. Macroeconomics Advisers, with the aid of the Washington University Macro Model, "a quarterly econometric system of roughly 600 variables, 410 equations, and 165 exogenous variables," predicts the GDP will rise 2.4 percent by the end of September.

(You can see a spreadsheet of Macroeconomic Advisers' calcuations here.)

Officially, says Herzon, the recession won't be over until the Business Cycle Dating Committee, a cabal of seven economists at the National Bureau of Economic Research (NBER), says it's over. That could take as long as six months because the Committee considers several other factors besides GDP, including employment, manufacturing, retail sales and income.

"But the other things tend to move contemporaneously or right behind GDP," Herzon explains. "GDP is a good summary statistic." Herzon believes that when the Business Cycle Dating Committee decides the recession is over, it will say the change happened in the third quarter.

"Around now, the economy is going to switch from contracting to expanding," says Herzon.

But, he warns, we shouldn't start singing "Happy Days Are Here Again" just yet. "We won't start feeling the end of the recession until the jobs start coming back. It's reasonable to expect six more months of declines in employment after the GDP reports positive growth. Businesses are trying to be more efficient. They're going to continue their efficiency programs for several months after they see an increase in sales.

"Maybe you'll feel better," he adds. "But we're calling a real end to the recession in 2010."

WARNING: Do not hit "Play" until 2010!

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