Peak Debt—Why The End Of The Road Is Near

The good folks at ECRI recently reminded us that at cyclical turning points, the “in-coming data” is often not remotely what it’s cracked up to be. On the eve of the worst recession since the 1930s in November 2007, the Commerce Department reported that the US economy was literally booming.

Even Larry Kudlow would have been letting out bullish snorts at the reported growth rate of nearly 5%. But per ECRI, it actually turned out not so much:

The real-time GDP data was even more misleading. At the end of November 2007, on the verge of the recession, the latest release showed Q3 2007 real GDP growth to be 4.9%. After being revised in later years, that quarter’s GDP growth now stands at just 2.2%.

Of course, not only did the apparent Q3 boom get revised down by 55%, but thereafter the slope was slippery indeed. By Q2 2009, the real GDP was actually 4.1% smaller than had originally been reported for the purportedly red hot September 2007 quarter.

Likewise, the nonfarm jobs report released in early December 2007—the very month the Great Recession officially began—-showed a reasonably healthy 94,000 gain for the month just ended.

Alas, that number, too, has been revised downward from the 138.467 million originally reported for November 2007 to 138.299 million or by -168,000 jobs. And, again, it was all downhill from there.

Moreover, as we have frequently pointed out, what turns down first is aggregate hours, reflecting the reduction of overtime and shortening of regular work week hours. Only later do actual headcount reductions show up in the BLS data.

Thus, employment growth on a hours basis actually peaked at about 3.21% year/year in June 2006, and steadily weakened from there until it posted at just 1.41% in December 2007 as the Great Recession officially incepted.

By June 2008, hours were already down 1.0% from prior year, and by the recession bottom in June 2009, total private hours worked had plunged by 8.0%—a figure substantially larger than the drop in payroll headcounts.

This is relevant because the hours worked indicator is again heading swiftly lower. After growing at nearly 2.5% during the spring-summer sugar high of 2018, it has dropped to just 0.84% as of August 2019.



Already a subscriber?

Login below!