CalculatedRisk tries an optimistic note:
Discussions of the business cycle frequently focus on consumer spending (PCE: Personal consumption expenditures), but the key is to watch private domestic investment, especially residential investment. Even though private investment usually only accounts for around 15% of GDP, the swings for private investment are significantly larger than for PCE during the business cycle, so private investment has an outsized impact on GDP at transitions in the business cycle.
And shows the chart below.
Note that during the recent recession, the largest decline for GDP was in Q4 2008 (a 8.9% annualized rate of decline). On a three quarter center averaged basis (as presented on graph), the largest decline was 5.9% annualized.
However the largest decline for private investment was a 43% annualized rate! On a three quarter average basis (on graph), private investment declined at a 35% annualized rate.
To a market monetarist what matters is the whole shebang, i.e. NGDP. In all situations investment is much more volatile than consumption. But if nominal spending evolves close to the level trend path, everything, investment AND consumption become much less volatile. And that was the main characteristic of the Great Moderation.
Calculated Risk further notes:
The key downside risk for the US economy in 2013 is too much austerity, too quickly. However, barring a policy mistake (I expect a fiscal agreement), it seems unlikely there will be a sharp decline in private investment in 2013. This is because residential investment is already near record lows as a percent of GDP and will probably increase further in 2013, and that suggests the US will avoid a new recession in 2013.
But MMs know that the key downside risk is for monetary policy to stay on the sidelines and not compensate for any austerity brought on by the fiscal adjustments that might take place!
Merry Xmas and a profitable New Year to all