The Beige Book is the Federal Reserve’s summary of economic conditions. The most recent Beige Book was released last week, and the word “uncertainty” appears 30 times…compared with 15 times in the previous report.
There is “uncertainty about domestic policy” and “uncertainty over the effects of U.S. fiscal policy”. Not to mention “European debt issues and regulatory and political uncertainty”, and “uncertainty about macroeconomic performance in Europe and China”. There is “uncertainty regarding future macroeconomic conditions”. Businesses are “waiting for the uncertainty to play out”, and “employers continue to site uncertainty regarding future economic conditions as a reason for limiting hiring”. And “retailers (are)…somewhat more cautious because of ongoing consumer uncertainty”, and “consumer uncertainty will not support growth in sales through the third quarter”. There is “uncertainty regarding global economic conditions”. The “overarching theme…is uncertainty”.
And above all, the “keyword for the overall outlook is uncertainty”.
And uncertainty was the keyword last week when Federal Reserve Chairman Ben Bernanke testified in front of the Senate Banking Committee…he said it five times.
While officials speak of uncertainty, others are anything but uncertain. Lakshman Achuthan of the Economic Cycle Research Institute (which publishes a widely followed economic index), left no room to question the direction of the economy back in May: “It is not whether there will be a recession, but when. And ECRI’s indicators are telling us that a recession is likely to begin by mid-year, if not sooner”.
Mid-year has arrived. And earlier this month Achuthan confirmed that the ECRI weekly index is telling us we are in a recession already.
Recessions are funny things. They are not always obvious…rather than ‘falling off a cliff’’ they are often more like rolling down a hill. And we don’t recognize a recession until we have been in one for a while. The National Bureau of Economic Research (NBER) looks for “a significant decline in economic activity” spread across the economy. And that can last anywhere from “a few months to more than a year”. But once a decline has been confirmed, the NBER doesn’t call the start of a recession right away, because the committee “does not make real-time judgments, but waits for the availability of all relevant data and for the completion of early data revisions. The committee then looks back on history and determines in what month the economy reached bottom and began to expand again”.
In other words, we don’t even get official word of a recession until it has already wreaked havoc on the economy.
We have had 47 recessions in the past 222 years. While we chatter about ‘uncertainty’, the 48th recession might have snuck up on us.