Economic Forecast: Thick Fog

By Shlomo Maital

   Few economists can see as far and as clearly as Nobel Laureate Paul Krugman, a longtime New York Times columnist.  His latest column is headed “The Humbug Economy”.  His key point:  He cannot recall a time when the economic fog surrounding the data was thicker or more pea-soup.  Recession? Sure.  No recession?  Of course. 

   Why the thick fog?  And why can economists not reach a conclusion (even if, as G.B. Shaw once said, you lined them up all up, they still would not reach a conclusion).  

    Here is Krugman’s reasoning.  There is a long lag with GDP data. When we do get 2nd quarter data, it may show another decline –the 2nd.  Technically, that’s a recession?  But no – that call is made by an independent committee, and they are unlikely to announce a recession despite two quarterly declines.

    GDP is measured on two sides:  output and income.  And Krugman notes, the two measures differ more than they ever have.  GDP production?  Weak.  GDP income:  strong.  Hmmm.  

    Wage price spiral?  No.  wage increases have slowed. Job creation:  Strong.  Not a signal at all of recession. 

    The global pandemic has thrown a monkey wrench into the global and US economies.  The US dollar, for instance, is now at virtual parity with the Euro…first time in two decades.  Strong dollar does not indicate recession.

   But the stock market does.  It is officially a bear market, with some 20% plus decline. 

    So what does an ordinary person do?

    Set aside some saving for a rainy day.  Fasten your seat belt.  And prepare for heavy fog for some time to come.