Orthodox economic theory assigns recession to some exogenous “shock.” Without it, an economy is supposed to grow indefinitely along its trend or potential baseline so long as NAIRU (non-accelerating inflation rate of unemployment) is maintained. As you can imagine, economists and policymakers spend most of their time on that latter part which is one reason, though more so ideology, that they ignore the questionability of the former assumption. In very simple terms, any positive number and a great many still negative are taken as evidence of “growth” precluding recession. Absent a “shock”, there are no other orthodox options.
Setting aside all objections to NAIRU, of which there are many starting with massive imprecision, there is some good logic to the textbook recession case. In very general terms, it suggests that recessions are just temporary deviations from the potential baseline brought about by whatever “shock.” That means there should be symmetry and proportionality in the recovery for its preceding recession. The conspicuous absence of both in this “cycle” already proposes something else perhaps beyond recession now into 2016.
The update for durable goods orders and shipments for February (released last week) showed the first monthly year-over-year gain in about a year. Both durable goods (ex transportation) and non-defense capital goods (ex aircraft) were slightly higher for the first time going back 12 and 13 months, respectively. Considering monthly variation or even the 29th day in February, the positive numbers may only suggest that the same trend is in place that struck in the latter half of 2014. In other words, because February 2015 was a contraction a small rise off that level in February 2016 does not immediately propose “it’s over.” In fact, as you can see below, the latest update only continues what might be an even worse case than recession.
At about $155 billion, durable goods orders (for consumer goods) have been stuck for about a year at a level first seen in late 2006 – almost a decade ago. Therefore, unless the positive number is enormous, it isn’t anything different. Both parts of that deficiency are relevant; stuck for a year indicating something more like “cyclical” and at something like 2006 levels suggesting structural. Put together, recession may not be the indication, leaving economists and their search for shock intact, but that isn’t actually important.
