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It ain’t much, but it ain’t a recession either
Posted by: McQ on Wednesday, April 30, 2008

Or at least not according to the technical definition of a recession, i.e. at least two quarters of negative economic growth.
The bruised economy limped through the first quarter, growing at just a 0.6 percent pace as housing and credit problems forced people and businesses alike to hunker down.

The country's economic growth during January through March was the same as in the final three months of last year, the Commerce Department reported Wednesday. The statistic did not meet what economists consider the classic definition of a recession, which is a retraction of the economy. This means that although the economy is stuck in a rut, it is still managing to grow, even if modestly.
Now, of course these reports are always subject to revision, but, again, given what we have from this report, we're still in positive economic territory. However, unless we see some recovery by the dollar driving fuel and food prices down, it seems, at least to me, given those pressures on the economy,
that negative growth is certainly a distinct possibility in the near future.
 
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unless we see some recovery by the dollar driving fuel and food prices down, it seems, at least to me, given those pressures on the economy,
that negative growth is certainly a distinct possibility in the near future.
That’s cold comfort for those desperately hoping to avoid the R-word. Nevertheless, it does show that much (not all or perhaps even most) of the current economic crisis is linked to consumer and investor confidence rather than weak fundamentals.
 
Written By: AIDA
URL: http://
A sure disappointment for those exaggerating the state of the economy for political purposes this November.

How’s my try?
 
Written By: jpm100
URL: http://
I came to believe during the 1980s that much of the press and the Left (excuse the redundancy) defines "recession" as "Republicans are in office" and "unparalleled economic growth" as "Democrats are in office." I’ve seen little in the meantime to convince me otherwise.

 
Written By: Jeff Medcalf
URL: http://www.caerdroia.org/blog
This article cites a different definition of the R-word...

http://www.economist.com/world/na/displaystory.cfm?story_id=11016296

 
Written By: acm
URL: http://
NBER does not define recessions as "two quarters of negative economic growth" and they’re the organization we formally and informally use to determine official dates of recessions. The "two quarters" standard is an interesting layman’s definition, but it’s not really in common usage.
 
Written By: Jon Henke
URL: http://QandO.net
In the EU, they would be celebrating this growth rate.
 
Written By: Paul
URL: http://
The "two quarters" standard is an interesting layman’s definition, but it’s not really in common usage.
Well it’s always nice when you real economists correct us laymen.
 
Written By: McQ
URL: http://www.QandO.net
I’ll have to say that looking at the data we are in a recession. The NBER rule of two quarters consecutive is often cited, so Ill disagree with Jon on its common usage, it is very common, but it isn’t how they make a ruling.The economists at the NBER, including Martin Feldstein, also think we are in a recession for what its worth. Even using the GDP data, it is not only open for revision, it is pretty suspicious to begin with. We have headline inflation way above the 2.6% used in the GDP deflator. That is even assuming you buy the 4%+ number we have been seeing, which I don’t. Do you feel like inflation is running at a 2.6% rate?

Of course when Republicans are in office the media is more likely to note bad news, but that doesn’t mean the bad news isn’t there. First from the NBER:

"Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, "a significant decline in economic activity." Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology."

So let’s dig into the release:

GDP increased 3.2% to an annualized $14.19 trillion (in current dollars);
Gross private domestic investment was down -0.7%;
Business fixed investment: -2.5%.
Residential investment data actually accelerated downwards; the number -26.7% was the biggest drop since 1981. (who keeps calling those Real Estate bottoms?)
Purchases of durable goods fell 6.1%
Q1 non-durables spending dropped 1.3%.
Business spending fell by 2.5%.
Investment in structures went down 6.2%.
Equipment and software outlays decreased 0.7%.


Remove the effect of increasing inventories and international trade and final domestic sales declined .4%. Note, that didn’t even happen on a nominal basis in the last recession. Adjusted for inflation (whatever number you use) that is pretty damn down.

There are some positives. In inflation adjusted terms exports rose, nominally they were up 5.5%. The other we should have mixed feelings about, federal consumption was up 4.6%. That beat inflation. As people who favor free markets we should find cold comfort on that.

That being said, I suspect that this will be a shallow recession, though the economic weakness could last a long time even if it isn’t very deep. Assets however are in severe danger due to declining profit margins, overpricing in housing and of financial assets, etc.
 
Written By: Lance
URL: http://riskandreturn.net
This is as good a time as any, I guess, to revive that old Hee Haw favorite;

"Gloom, despair and agony on me-e!
Deep dark depression, excessive misery-y!
If it weren’t for bad luck I’d have no luck at all!
Gloom, despair and agony on me-e-e!"

http://www.answers.com/topic/hee-haw-1?cat=entertainment
 
Written By: timactual
URL: http://
The NBER rule of two quarters consecutive is often cited, so Ill disagree with Jon on its common usage, it is very common, but it isn’t how they make a ruling.
In reality, it is a fairly common macroeconomic definition of recession. And I was unaware that NBER had the power to change how macroeconomic terms are defined.
 
Written By: McQ
URL: http://www.QandO.net
As I said, it is common, and it is is often attributed to the NBER. I think it will be revised downward eventually, but even if not I still have a problem with the deflator being only 2.6%. Finally, the economy is pretty poor however we slice the data or use any particular definition of recession.

AS you said, it isn’t much. I was just trying to point out how right you were;^)
 
Written By: Lance
URL: http://riskandreturn.net
The NBER rule of two quarters consecutive is often cited, so Ill disagree with Jon on its common usage, it is very common, but it isn’t how they make a ruling.
I suppose it depends on what you mean by "common usage". Sure, people invoke the "2 quarters" thing in casual discussion of economics. But I don’t recall people defining actual recessions that way. The 1991 and 2001 recessions were calculated based on the NBER standard, not the "two quarters" standard (which is not "the NBER rule").
The economists at the NBER, including Martin Feldstein, also think we are in a recession
I’m certainly prepared to believe that some of them think that, but Feldstein was no longer the head of the NBER when he made his remarks. What have other NBER analysts said?
In reality, it is a fairly common macroeconomic definition of recession. And I was unaware that NBER had the power to change how macroeconomic terms are defined.
If by "fairly common", you mean "some people and websites point to it", sure. No argument there. But we all use the same dates for the recessions of 2001, 1991, 1981-82, etc. Who defined those dates? It wasn’t a consecutive quarter calculation. The dates we use to mark the beginning and end of recessions are officially settled upon by the NBER, using their more sophisticated calculation.

That’s the definition that counts in academic, government and economic circles.
 
Written By: Jon Henke
URL: http://QandO.net
If by "fairly common", you mean "some people and websites point to it", sure. No argument there
I believe I was fairly clear about what I meant - it is a common definition of the term used in macroeconomics. The website simply illustrates the point.
 
Written By: McQ
URL: http://www.QandO.net
AS you said, it isn’t much. I was just trying to point out how right you were;^)
I understood that Lance, but being a mere layman, I wanted it to be clear to the economic expert as well.
 
Written By: McQ
URL: http://www.QandO.net
(shrug) In the real world, recessions are defined by the NBER.
 
Written By: Jon Henke
URL: http://QandO.net
Adding: While "two consecutive quarters" may be an informal rule of thumb, the actual, "technical" definition of recession does not require that to occur.

We had a recession in 2001, but there were not two consecutive quarters of negative/no growth. QED.
 
Written By: Jon Henke
URL: http://QandO.net
We had a recession in 2001, but there were not two consecutive quarters of negative/no growth. QED.
Or we had what a group declared a recession which didn’t meet the technical definition of a recession.
 
Written By: McQ
URL: http://www.QandO.net
Seems this "layman" doesn’t agree either:
Out: Recession. In: Expansion. That’s my quick take on today’s first-quarter gross domestic product number, which showed that the economy grew 0.6 percent in the first quarter. Now that’s not a robust number by any means, but it’s not so bad given all the worry out there that the economy is headed off a cliff. Before you declare a recession, as many economic pundits have, shouldn’t the economy, well, actually recess a bit—if only for a quarter?

Remember, the shorthand rule for declaring a recession is back-to-back quarters of negative growth. The semiofficial recession judge, the National Bureau of Economic Research, has a more complex formula, but I am not sure it has ever declared a recession when the economy never actually shrank. And consider this: The Intrade online betting market now says there is a meager 25 percent chance of a recession—using the negative-back-to-back-quarters definition—in 2008.
 
Written By: McQ
URL: http://www.QandO.net
And yet, you, I, the federal government and pretty much everybody else recognizes not just the fact that we had a recession in 2001, but we recognize the specific dates defined by the NBER.

That’s the recognized standard for determining a recession. There have been many potential ideas about what a recession-metric would be, but only one formally defines them. You’ve adopted their defined recessions, as well.

By all means, hold out for a new recession-defining body, but good luck with that. They’re recognized in official research, government data, the media and common knowledge for a valuable, sophisticated and broad analysis that examines recessionary factors across the economy, not simply a crude GDP calculation.
 
Written By: Jon Henke
URL: http://QandO.net
That’s the recognized standard for determining a recession.
Apparently it’s not, at least not in macroeconomics as I’ve cited - but you keep pushing it as if it is if that makes you feel better.
 
Written By: McQ
URL: http://www.QandO.net

 
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