Four Reasons We Can't Call It a Recession - Yet

If I were an economic advisor to a presidential candidate, I couldn't say it:  The economy may not be in recession.

The generally acknowledged decider is the Business Cycle Dating Committee of the National Bureau of Economic Research, a non-profit organization.  They look at four coincident indicators, plus other indicators that the individual members may be interested in (tea leaves, the entrails of small animals, Chinese horoscopes, etc.)  Here are the big four:

Total business sales have clearly turned up.  (We don't have the official figures for June yet, but I plugged in the nominal values, adjusted for inflation with the personal consumption deflator, and got in the ballpark.)  Industrial production has also turned up the last two months.  (I think NBER should look at manufacturing production rather than total industrial production, because total is pushed up and down by utilities' production, which is heavily influenced by weather.  If August is hotter than than normal, then electricity demand goes up for air conditioning, and industrial production increases. Manufacturing production has been up for the last three months.)

The decline in employment is troubling, but the magnitude of the drop is small compared to past recessions.

The worst problem is the drop in real personal income (excluding transfers).  The July figures, when we get them, will include last month's high inflation, due to high gasoline prices, so the real income level will be down.  August numbers are likely to be better, now that gasoline prices have retreated.  Nonetheless, personal income is the best argument for us being in recession right now.

In total, my best guess is that when it's all over, we'll call it a growth recession, meaning that the growth rate of the economy slowed significantly, but it wasn't quite a real recession.

Comments

[User 143167:]

The only reason that you see the real economy is still afloat is the slumping dollar. With the dollar on the rebound, we will have a much weaker than expected economy and corp earnings ahead in 2H08.

2008 Aug 16 06:53 AM

[sabbadoo32:]

It can be said that we're not in a recession. It's also clear we're not in a boom.

It's also clear the "boom" we came out of was based on all the things we tell our kids not to do--don't waste your money, don't borrow money you'll need later, don't buy things simply because it's on TV, don't live beyond your means.

I'll give you the war of semantics. The rest of us, unfortunately, are losing the war on reality.

2008 Aug 16 08:55 AM

[GMC:]

Uncle Sam might say:
"Its hard to feel good about things as they stand right now but on the other hand I've experienced much worse. So, I guess I not depressed, just down a bit. I'll be better soon. Just give me some time..."

2008 Aug 16 10:51 AM

[wpdragon:]

not in a recession? HOGWASH....

keep listening to the government numbers, and by the way the moon is made of blue cheese...

2008 Aug 16 12:31 PM

[TinyTim:]

Unemployment and real personal income lead the first two. As these get more unfavorable, production and sales will drop.
I can't believe consumer sentiment is still high. Must be the drop in gas prices or else I'm hanging with the wrong crowd.

2008 Aug 16 02:55 PM

[johnthebear:]

Why does it matter what you call it or when? If you are hurting, you know there is a recession that is affecting your life in a real way.

The entire world is slowing down. Markets all over the world have lost $12 trillion dollars in equity that is not won by a group of winners... only losers... not a zero sum game!

Just how do you suppose the banks around the world will re-capitalize sufficiently to go back to making loans needed for future economic expansion? Governments can print lots of cash, called "inflation fuel" but how does that help in the long run?

Looks like we will have to be very patient for a very long time and think about survival, just as our grandparents did in the 1930's.

I think it time to give "Big Oil" big financial incentives to bring "New Production" on line in 24 months, giving them a big tax break. That means drilling off shore, Alaska and in the West. Make a case by case determination with the benefit of the doubt going to the Oil Companies.

Think about it, almost all high tech companies make a higher return on equity than the Oil Companies, they sell at higher PE ratios and the dividends by the oil companies are modest by anyone's standards.

2008 Aug 16 05:56 PM

[Freefalling:]

We've been here before, only this time we think we can print our way out of it. Has that ever worked before? Why will it work this time. I guess it really was Voodoo Economics. It will certainly be a curse on the future generations.

2008 Aug 16 06:44 PM

[wpdragon:]

What should we call it then, tomato? tomahto?

2008 Aug 16 09:54 PM

[Steven Hansen:]

If you fall in love with a particular economic or investing philosophy, I am willing to bet over the short haul you will loose money in times of economic stress as we are experiencing now.

The game being played between the various central banks and the Fed parallels that of chess masters. Whether this is a recession or not is not important - the economy is not good. This is not the time to be worrying about making money but the preservation of capital.

2008 Aug 16 11:02 PM

[Doug Poretz:]

I think there is a fundamental mistaker in using the word "recession" whether it is accurate or not. "Recession" is a word used to describe topical economic conditions that have characterized manufacturing era economies. But we now live in a global economy that is transitioning to be knowledge rather than manufacturing based. I've written about this in my blog if anyone is interested: deathoftime.com with a post that is clearly titled to this point.

2008 Aug 17 01:32 PM

[mouse:]

This commentary would be more accurate if it used the real numbers for inflation and the GDP, not the government fiction fed to the public every month. The real numbers, calculated before all the dishonest tweaks are factored in, are much worse. They can be found at Shadow Government Statistics by John Williams---the truth is very ugly.

2008 Aug 17 07:09 PM