Calling the recession: not just a ‘duh’ thing
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The private group charged with determining when U.S. recessions begin says we’re officially in one.
No surprise there. What is surprising in the report today from the National Bureau of Economic Research is that the recession began at the end of last year.
The traditional definition of a recession is at least two consecutive quarters of decline in the country’s gross domestic product. But after shrinking slightly in the fourth quarter of 2007, GDP actually rose, albeit slowly, in the first half of this year. (It contracted again in the third quarter, and probably is falling off a cliff in the current quarter.)
What gives? Well, the NBER allows itself a lot more wiggle room than the two-quarters-of-falling-GDP criterion offers. Here’s the definition used by the group’s business-cycle dating committee:
A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators.
As it turns out, the numbers for income early this year weren’t quite as good as those for production (a.k.a. GDP) -- income adjusted for inflation actually fell in the first quarter -- even though the two measures are theoretically supposed to be equal.
But apparently the biggest justification for saying we’ve been in a recession all year is the cumulative 1.2 million jobs lost in the 10 consecutive monthly declines in the number of people employed at U.S. companies, even if the losses were relatively mild until recently.
If you lost your job in the first half of the year, it’s probably cold comfort to be able to say it happened during an official recession. And, in any case, the statistics on which the NBER based its declaration are all old news.
Still, the bureau’s determination offers something to think about -- potentially good news, even -- regarding the economy and the stock market:
If we’ve been in a recession since December, there’s a chance we’re at least halfway through it. (Some analysts predict economic growth will resume in mid-2009, though others say 2010 is more likely.) Just thinking we might be near halftime could provide a nice psychological boost -- and psychology is important in all downturns, maybe none more so than one triggered by a financial crisis.
That’s not all. Stock indexes typically bottom –- ending a bear market -- well before the economy starts to recover.
So if the economy’s been in decline all year, it’s not so far-fetched to think that, despite today’s 679-point slide in the Dow, the bear market actually ended when indexes hit new lows Nov. 20. We can only hope.
-- Arthur Buckler