The other day it was Feldstein who said he´s not sure what a depression looks like, but that there was a nontrivial chance that the US would turn down again.
This time around, Neil Irwin says that things are so bad that the economy can´t go much lower:
The U.S. economy has been through a lot in the past few months — an unprecedented downgrade of the government’s credit rating, a debt crisis in Europe that threatens to spread across the Atlantic, and a steep decline in financial markets. Yet most economic indicators have pointed to continued, albeit slow, growth.
It isn’t the resilience of the U.S. economy. Rather, it’s a sign of how bad things have already become. Many of the key sectors that usually cause economic contraction, including housing and durable goods such as automobiles, are already at such low levels that they don’t have much more room to fall.
In effect, both are just “looking down”. While for Feldstein things can get worse, for Irwin the chances of that occurring are slim.
The problem is that with the exception of a few (Market Monetarists among them), no one bothers to “look up” and argue that there´s “plenty of rock to be climbed before the summit is reached”. In particular, the Fed “talks the talk” about all the ammunition it has still stored in its armory that can be used if things get worse (“looking down” again), but since, according to Irwin those chances are slim, we´ll not very likely see them deployed!
Today the stock market responded positively to better than expected retail sales data. We really seem to be content with little. Everybody is “looking down” and it´s enough that we just “don´t drop further”. As the figures below, which nicely complement the frequently drawn NGDP graph, indicate, the economy sits at the bottom of a deep hole into which it dropped after mid 2008. And unlike a friend of mine argued, non financial variables can and sometimes do turnaround “on a dime”. Just as they dropped vary fast after mid 2008, when spending expectations plummeted they can, like industrial production did between March and July 1933, “go off like a rocket” when spending expectations shoot up (as they did when FDR introduced PLT and backed it up by delinking to gold).
Update: Hopeful sign. Goldman Sachs is “looking up”.