Two sides to every coin?
Don Luskin takes issue with a Merrill Lynch economist and the case for recession. We’re not taking a position on the recession issue, but we think we saw this economist on CNBC the other day, saying, if memory serves, that stocks would bottom in mid-2008. It is in the context of such predictions that the correctness or incorrectness of his economic statistics becomes more interesting:
Robert Rosenberg, the celebrated economist for Merrill Lynch. He’s been bearish forever (that didn’t stop Merrill Lynch from throwing away untold billions on foolish investments in exotic subprime mortgage derivatives — but that’s another story). Rosenberg is one of those economists who is very facile at quoting economic statistics — and massaging them to make his bearish case. Unless you’re an economist yourself, it’s pretty easy to get swayed by his seemingly authoritative arguments.
This week, following the announcement that the unemployment rate has risen to 5% from a low of 4.4% earlier this year, Rosenberg has gotten a lot of publicity “proving” statistically that this means we’re heading into recession. He told Merrill clients: “At no time in the past 60 years has the unemployment rate risen 60 basis points (50 bps is the actual cutoff) from the cycle low without the economy slipping into recession…” And he attached a chart, claiming that this was true “100% of the time.”…But let’s look a little closer. Note that Rosenberg cheats a bit by talking about rises in the unemployment rate “from the cycle low.” What does that mean? How do you know when you’re at the “cycle low,” until months or years have gone by and you can identify a particular moment as a “cycle low?”
This is important, because there have been times when the unemployment rate has risen by 50 basis points, or more, when a recession did not follow. But apparently Rosenberg doesn’t count those, because those weren’t a “cycle low” according to his personal definition. So when you look at all the data, not just the examples that fit Rosenberg’s argument, what he claims is not actually true “100% of the time.”…
Rosenberg also told Merrill clients that “Aggregate hours worked in the economy contracted at a 0.4% annual rate in 4Q, and this comes on the heels of a 0.6% decline in 3Q. Back-to-back declines in total hours worked have always been associated with recession.” Huh? My friend Michael Darda, a young economist at MKM Partners, pointed out to me that aggregate hours worked didn’t contract at all in the fourth quarter of 2007 — they grew! Can an economist as eminent as Rosenberg simply have gotten it wrong?
So it seems. I checked it out at the web site of the Department of Labor, who compiles these statistics. In the fourth quarter of 2007, aggregate hours worked increased, by almost 1% at an annual rate. And in the third quarter, they also increased, this time at an annual rate of more than 1.2%.
You can be of good cheer or as gloomy as you like. But first it might be useful to agree on what the numbers actually are.