Recession Watch 2013: Term Spread Probability Series

With the weak economic recovery lagging through its fourth continuous year, its sensible to start looking for clues, however so slight, of the possibility of oncoming recession.

First, let’s remember that while the NBER makes the official call of both the “peak” of a business cycle expansion and the “trough” of the subsequent recession, their officiating is delayed to say the least.

For a more “real time” assessment of the prospects of recession, various methods of number crunching have been formulated to distill out a basic probability assessment from several underlying macro series data sets.

One popular statistical method is the yield-curve based “Term Spread” probability method.


Spearheaded by economist Professor Arturo Estrella of the Rensselaer Polytechnic Institute, this method derives a probability of recession from the spread between long and short yields (10-year and 3-month) and is by all accounts the standard for recession probability forecasting.

The latest data indicates that the probability for recession is remains elevated with a January 2014 probability (the probability that there will be a recession by that date) of 4.4%.

Keep in mind that a positive indication using this method would require this probability to reach 30% so while the probability is clearly rising, the current probability is still quite low.

Recession Watch 2013: Piger Probability Series

Last year I reported on a relatively new recession probability indicator (… the “markov switching” series recently introduced to the Fed FRED/Blytic) that was giving a pretty clear, though preliminary, indication of probable recession.

While I noted that the series was highly revised, I pointed out that even taking into account the revisions, the series was giving a recession signal since using just the "maximum" reported values (values that had been all been revised lower) the reporting 20% probability was very unusual and typically associated to oncoming trouble.

In the latest release, the April data (... there is a reporting lag) indicates that the probability of recession has increased to 3.08% while the standout August 2012 value (that initially peaked interest in this series) has now been revised to 1.22%.

It's important to note though that the point of my prior post was to highlight just the "maximum" reported values and while the latest release revises down August's 19.6% and reports an additional low probability for the latest month, it makes no difference... the fact remains that this series has NOT given such a significant over estimate of recession without there being a probable recession ahead.

Now clearly, there could always be a first time... this is just estimated data... but the prior 19.6% reported figure clearly argues for following this series very closely in the coming months.  

Reading Rates: MBA Application Survey – July 10 2013

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage (from FHA and conforming GSE data) rose again climbing 10 basis points to 4.52% since last week while the purchase application volume decreased 3% and the refinance application volume decreased 4% over the same period.

Rates have literally exploded rising a whopping 106 basis points over the past nine weeks seemingly directly correlated with the Feds recent suggestion that they may start to wind down GSE purchases later this year.

Clearly, steadily increasing rates is working to tamp down mortgage application activity but thus far, the spillover to home sales and price indicators appears minimal.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).

Latest Bulletin of the International Union of Soil Sciences (IUSS) features VSU soil science

The latest issue of the International Union of Soil Sciences (IUSS) bulletin is now available. The bulletin, the official publication of IUSS (formerly International Society of Soil Science or ISSS) with approximately 60,000 members worldwide, has a long and distinguished history. The first volume was produced by  F.A.van Baren and published in 1952. The society president at the time was the renowned soil scientist, Prof. R. Tavernier from Gent, Belgium.

In the Introduction of the maiden issue, Prof. Tavernier wrote that “the bulletin of the International Society of Soil Science aims to pass on official information about all important events concerning the life and activity of the Society to its members and to National Societies and Regional Groupings as well as to Research Institutes. We hope that this bulletin will satisfy our members’ wishes, who have expressly shown their desire to be informed about these activities and about the development of Soil Science in the diverse countries of the world. We also hope that it will serve to reinforce the already excellent relations between our members, and to stimulate international scientific cooperation.”

The latest bulletin (vol 122, June 2013) features Soil Science at Visayas State University, widely considered as the strongest soil science department in the Philippines today.

The above photo shows the soil scientists from VSU during a pedological field work in the volcanic central highlands of Leyte, Philippines (740m asl) in early 2012.

The arsenic contamination in rice

Arsenic (As) is a heavy metal that is well-known as a poison and a carcinogen. Its average concentration in the soil ranges from 5 to 6 mg/kg which is generally related to rock type and industrial activity.

Arsenic contamination of paddy soils is widespread and elevated arsenic levels in rice grains is now a hot issue in many parts of the world. Martha Rose Shulman wrote in the New York Times (15 April 2013) that “it is clear that the levels of inorganic arsenic in rice and rice products are high, and that we and especially children, babies and pregnant women should limit our intake of rice and rice products.”

According to Bogdan and Schenk (2012) in their recent study published in the highly respected Journal of Plant Nutrition and Soil Science (Wiley-VCH Verlag GmbH), flooded rice may contain high arsenic concentration compared to other grain crops. In fact, aside from arsenic-contaminated drinking water, rice is the largest food dietary source of inorganic arsenic. This is because the reducing environment in flooded rice fields causes the dissolution of arsenic and thus increases its availability to the rice plant. Meharg (2004) added that under paddy field conditions, inorganic arsenic introduced into the soil is inter-converted between the reduced inorganic species arsenite (the dominant type) and the oxidized species arsenate. Moreover, arsenite is taken up into the root by the highly efficient Si pathway and arsenate can be taken up via the phosphate transport system.

Bogdan and Schenk (2012) observed among other things that continuous arsenic supply in the soil resulted in doubling of arsenic concentration in rice shoot and grains. They also found that arsenic was mobilized from the root and shoot to the rice grains where it accumulated.

References
Bogdan K. and M.K. Schenk. 2012. Arsenic mobilization in rice (Oryza sativa) and its accumulation in the grains. J. Plant Nutr. Soil Sci. 175: 135-141.
Meharg A.A. 2004. Arsenic in rice-understanding a new disaster for Aouth-East Asia. Trends in Plant Science 9: 415-417.

Invitation to the 2013 National Conference on Marginal Uplands

The Visayas State University (VSU), through the Philippine Higher Education Research Network (PHERNet) of the Commission on Higher Education (CHED), is spearheading a research project on enhancing farm productivity and environmental quality in climate change vulnerable marginal uplands in Eastern Visayas. As part of the project activities, the university will organize a National Conference on Development Initiatives in the Philippine Philippine Marginal Uplands, with the theme, "Enhancing farm productivity and environmental quality of Philippine marginal uplands: A scan of the past and a look into the future." The conference will be held on 22-24 October 2013 at VSU, Baybay City, Leyte.

Marginal uplands: current research initiatives at VSU

Marginal uplands are hilly or mountainous lands having very low crop productivity due to poor soil quality (degraded soil), limited water availability, and unfavorable socio-economic conditions. They are widespread in Southeast Asia and other parts of the humid tropics (e.g., Agustin and Garrity 1995; Asio et al., 2009). Resource poor-farmers (~ 1.4 billion people) in the developing world are located on these risk-prone marginal environments (Altieri 2002). 

Marginal uplands in Inopacan and Hindang, Leyte

In the Philippines, the poorest households, who are also the most vulnerable and most food insecure, are living and farming on these marginal lands (Roa 2007). The agro-ecological conditions in these areas are typically not suited to intensive production systems due to low-quality soils, hilly slopes, limited access to inputs or markets and extremely diverse and site specific conditions (Asio et al., 2009; Tyler 2004). Crops that can be grown on these marginal lands are often restricted to root crops such as sweet potatoes, beans and other legumes, thereby limiting food supply and diversity in hilly lands.  In addition, farmers often seek seasonal off-farm employment to survive.  Thus, research efforts are urgently needed to enhance food security and alleviate the difficult and risk-prone living conditions of these poor farming households. 

A daughter of a poor farmer living in the marginal upland of Inopacan, Leyte

Two on-going research projects on marginal uplands at VSU are the CHED-funded Philippine Higher Education Research Network (PHERNET) Program on “Enhancing food production and environmental quality in climate change vulnerable marginal uplands of Eastern Visayas” and the NRCP-funded project “Characteristics and nutrient status of degraded upland soils in Samar Island”.

Poor soil quality and low biodiversity characterize marginal uplands

References
Agustin PC and Garrity DP (1995). Historical land use evolution in a tropical acid upland agroecosystem. Agriculture, Ecosystems and Environment 53:83-95.
Altieri MA (2002). Agroecological principles for sustainable agriculture.  In: Agroecological Innovations (N. Uphoff, ed.). Earthscan, London, pp: 40-46.
Asio VB, Jahn R, Perez FO, Navarette IA, and Abit SM Jr (2009). A review of soil degradation in the Philippines. Annals Tropical Research, 31:61-94.
Roa JR (2007). Food security in fragile lands. PhD Dissertation, Wageningen University, Netherlands.
Tyler S (2004). Participatory research for community-based natural resource management in Asia. JIRCAS International Symposium Series 12: 165-169.