Calls for a U.S. Recession Are Premature

In May of 1897, an English correspondent for the New York Journal, Frank Marshall White, contacted Mark Twain who was in London at the time to inquire after his health. White's editors had heard a rumor that Twain was on his deathbed. On May 31, Twain responded to White:

I can understand perfectly how the report of my illness got about. I have even heard on good authority that I was dead. James Ross Clemens, a cousin of mine, was seriously ill two or three weeks ago in London but [he] is well now. The report of my illness grew out of his illness.

The report of my death was an exaggeration.

Investors on Wall Street know exactly how Twain (a pen name adopted by humorist Samuel Langhorne Clemens) felt. Reports from the Wall Street Journal, tweets from President Trump, riots in Hong Kong, etc. set the stage for an 800-point drop in the Dow on Wednesday.

The rumors seemed to have substance. On Wednesday the Journal reported that "early indicators and business sentiment indicators point to another weak performance in the third quarter. That could potentially indicate a recession…." It backed it up by noting that Germany's economy went negative in the quarter that ended in June, while the jobless rate in China's largest cities hit the highest level seen since such reporting began. Other data on China's factory production, consumer spending, property investment, and "other key readings" were all "lower than expected," said the Journal.

Given the opacity of data coming from Chinese government sources, the Journal looked at exports to China from the eurozone (19 of the 28 countries making up the European Union) and reported that they slowed to a barely perceptible increase of 1.5 percent in the first five months of the year. The Journal quoted Germany's economic minister Peter Altmaier: "The new figures are a wake-up call and a warning. We are in a weak growth phase but not yet in a recession." All Germany needs is another negative quarter and the classical definition of a recession there will have been met.

The next day, the Journal reported on an internal poll it had taken of a number of economic gurus who, looking into their crystal balls, declared that the odds of a recession in the next 12 months had risen to 33.6 percent, up from 30.1 percent in July. All this proves is that when predicting the future, it pays to be accurate to at least three decimal places!

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