The Recession That Wasn't
Recession? Where? Looking back months from now, we may find that the economy grew 0.6 percent in the fourth quarter of 2007, 1.2 percent in the first quarter of this year, and 2.5 percent (according to a model from Macroeconomic Advisers) in the second quarter. Now my buddy Barry Ritholtz over at the Big Picture blog has criticized me and economist Brian Wesbury and CNBC's Larry Kudlow for having the temerity to conclude that since the economy expanded in the first quarter—gross domestic product rose at a 0.6 percent annual pace, according to preliminary government estimates—that the economy, well, expanded in the first quarter. (FYI: That initial take may have underestimated first-quarter growth by half given today's economic data, which showed a closing of the U.S. trade gap.)
Ritholtz goes on to note that of the 11 post-World War II recessions, four started with positive-growth quarters, two were flattish, and five were negative. Now all this may sound crazy if you had ever heard that recessions were defined as back-to-back quarters of negative growth. Indeed, by that measure, the 2001 recession was not a recession at all. But the National Bureau of Economic Research uses a more complex calculation. From the NBER website:
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP. The NBER considers real GDP to be the single measure that comes closest to capturing what it means by "aggregate economic activity." The committee therefore places considerable weight on real GDP and other output measures.
Because of that more expansive definition—one that uses monthly data—the NBER has often labeled periods as recessionary even when the overall economy was occasionally growing on a quarterly basis. So according to the NBER, the economy peaked in March 2001 and bottomed in November 2001, even though the second and fourth quarters of 2001 saw positive GDP growth.
A couple more points on this little controversy:
1) It's not just the 1Q number that gives me hope. The jobs numbers—both initial unemployment claims and monthly payroll numbers—are also way below levels commonly seen during recession. Plus, corporate profit growth outside of financials and housing remains strong. Simply put, the recessionistas—to borrow a classic Kudlow zinger—are running out of time with both monetary and fiscal stimulus (bleh!) kicking in gear and the credit markets on the mend. If 2Q isn't negative, then what quarter will be negative, if any? Even the NBER doesn't declare recessions when the economy never actually has a single down quarter.
2) What's more, many bears say, this slowdown isn't supposed to be some mild hiccup where economists have to dig deep into the data to determine whether they met some technical, after-the-fact definition of recession. This is supposed to be the Big One, the Mother of all Recessions, a once-in-a-generation/lifetime purging of greed and liquidation of excess—of such enormous magnitude and degree that Bruce Springsteen will write folk ballads about it and Oliver Stone will make a sparsely attended movie about it. But so far the data say "no."
Tags: economy | GDP | recession
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Reader Comments
The "trick" of economic management is supposed to be that of avoiding recessions while also fighting inflation, preserving the value of the dollar, maintaining full employment and NOT running up the national debt and the trade deficit with other nations.
No one wants a recession, but those cheering how this one has "disappeared" might want to consider that your Uncle Sam and his private Federal Reserve is printing money at unprecedented speed in several different ways (diluting the value of your dollars) and seeing to it that if you loan money to a bank (checking, savings or CD accounts) you will incur a guaranteed loss against real inflation for doing so. Magic? Uh, no. More like systemic slight-of-hand.
If we're now out of the recession we were never in (or whatever this author is saying), I'd like to see the artificially low bank interest rates for savers restored to where they were before the last seven or eight "emergency" cuts at the Fed.
Fat chance, right?
It's ironic that "conservatives" in government have seen fit to literally slap the most financially conservative people in our society----the FDIC-insured bank savers, and for all the years since Bush was elected--- while they presided over outlandish usery by the credit card issuers and the greatest runup of national debt in the history of the world. "Conservatives" now need a new word to describe themselves, because their minions have turned this one upside down and made a lie out of what it is supposed to mean.
long term umemployment and jpt
Ironically, when we discuss unemployment, it often misses the most crucial numbers the Long Term Unemployed, and of course Jobs Per thousand.
You say that we are not at recessionary numbers.. then I susggest please go back and recheck your numbers and information, and make sure you don't forget the 1.4 million (weekly) who are long term unemployed and are NOT counted as the Unemployed because they are not collecting their checks. Make sure you dont forget the 4 million who are working part time, because employers keep cutting hours and wages. - Not since World WAR 2 has long term unemployment been as bad as it is today!
Oh, and let's not forget that wages are at the lowest ever adjusting for inflation. In fact our generation is the First Generation which is not making more money than the previous one.
Wages, have been in a decline at least 4 times in the past 5 years.
There are many other issues here to look at.. but, I suggest you consider reading the experts at EPI.org - they have rarely been wrong, if ever.. must be the Education that they have behind them, and that they really are no partisan, and don't have ulterior motives..
I suggest getting some facts straight.. and more than anything look at Payroll Per thousand.. that is the population growth compared to Jobs for the population! Those are the Accurate numbers you REALLY want to look at..
Patsy
Unemployed and Evicted = No Recession
I guess the fact that I, an educated and degreed woman, have been without full time , permanent work since January 2007 ( I managed to snag a series of temp jobs for under $10 an hour, until just the past March, when all the agencies I've been calling suddenly 'had nothing' for me) and the fact that now I must vacate my apartment due to inability to pay rent, and that for some odd reason I am NOT eligible for unemployment (seems I was unemployed too much of the time to qualify for benefits) means there's something wrong with me, or I just have bad luck, but has nothing to do with the true fact that we are in a recession? Hmm.. I think I understand economics now..thank you.
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