I've seen many people claim that we aren't in a recession, because we haven't had 2 consecutive quarters of negative economic growth. But is that the definition of a recession? If so, who decided that? Just who decides what a recession is and when we are in one?
Some answers:
Recession - who decides? A four-page paper from the Congressional Research Service (CRS) discusses the definition of a recession. The "generally recognized arbiter" of recessions is the National Bureau of Economic Research* (NBER), specifically its business cycle dating committee. On Jan. 7, the committee issued a memo which stated in part:
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.
CRS notes that since it takes time to compile data, it can be more than a year to date the beginning of a recession. The paper concludes:
Although there can be a significant delay between the onset of a recession and the dating committee determination, there is often little doubt that the economy is, or has been, in recession well before the announcement. For policy to have mitigating effects, it must occur quickly. Policymakers may not have the luxury of holding themselves to as strict a definition of recession as economic analysts. - http://hawaii.gov/lrb/libblog/2008/01/recession-who-decides.html
In macroeconomics, a recession is generally associated with a decline in a country's real gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year. However, this rule doesn't always hold true. The National Bureau of Economic Research's (NBER) Business Cycle Dating Committee ultimately decides whether the economy has fallen into a recession. The NBER does not use any specific methodology for determining the start and end dates of a recession - instead it looks at a variety of economic indicators over various time periods and determines whether to declare that the economy is in a recession based on those data.
In the US, the judgment of the business-cycle dating committee of the National Bureau of Economic Research regarding the exact dating of recessions is generally accepted. The NBER has a more general framework for judging recessions:
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.
A recession may involve simultaneous declines in coincident measures of overall economic activity such as employment, investment, and corporate profits. Recessions may be associated with falling prices (deflation), or, alternatively, sharply rising prices (inflation) in a process known as stagflation. A severe or long recession is referred to as an economic depression. Although the distinction between a recession and a depression is not clearly defined, it is often said that a decline in GDP of more than 10% constitutes a depression.[1] A devastating breakdown of an economy (essentially, a severe depression, or a hyperinflation, depending on the circumstances) is called economic collapse. - Wikipedia
A recession is a prolonged period of time when a nation's economy is slowing down, or contracting. Such a slow-down is characterized by a number of different trends, including:
* People buying less stuff * Decrease in factory production * Growing unemployment * Slump in personal income * An unhealthy stock market
By the conventional definition, this slow-down has to continue for at least six months to be considered a recession.
But the economists who officially designate a recession in the United States do not rely on the GDP alone. By general agreement, the official determination of recession is left to the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER). The NBER is not a government agency; it is a private organization that works to further understanding of the economy. This non-profit, non-partisan organization employs hundreds of economy experts (university professors, mostly) to analyze and report on the U.S. economy.
Among other things, NBER economists keep track of the nation's business cycles -- the courses of expansion and contraction in the economy. The Business Cycle Dating Committee decides whether or not the economy is in recession based on several monthly indicators. The GDP is not the most important factor to the NBER economists. They give more weight to personal income, the national employment rate, sales in manufacturing and trade, and industrial production. - http://www.howstuffworks.com/recession1.htm
"Economist Martin Feldstein believes U.S. is in recession, possibly a severe one" - CNN, March 21, 2008 (Martin Feldstein is an American economist. He is currently the George F. Baker Professor of Economics at Harvard University, and the president and CEO of the National Bureau of Economic Research (NBER). From 1982 to 1984, Feldstein served as chairman of the Council of Economic Advisers and as chief economic advisor to President Ronald Reagan (where his deficit hawk views clashed with Reagan administration economic policies). - DG)
Harvard University economist Martin Feldstein, a member of the group that dates business cycles in the U.S., said the nation has entered a recession that could be the worst since World War II.
``I believe the U.S. economy is now in recession,'' Feldstein, president of the National Bureau of Economic Research, told the Futures Industry Association conference in Boca Raton, Florida. ``Could this become the worst recession we have seen in the post-war period? I think the answer is yes. I would emphasize the word `could.' '' - March 14, 2008 Bloomberg.com
BERLIN (AP) -- Warren Buffett, whose business and investment acumen has made him one of the world's wealthiest men, was quoted in an interview published Sunday as saying the U.S. economy is already in a recession.
Asked by Germany's Der Spiegel weekly whether he thinks the U.S. could still avoid a recession, he said that as far as the average person is concerned, it is already here.
"I believe that we are already in a recession," Buffet was quoted as saying. "Perhaps not in the sense as defined by economists. ... But people are already feeling the effects of a recession."
"It will be deeper and longer than what many think," he added. - CNNMoney.com
Some can sign and dance around whether we are in a recession or not. (Didn't someone once say something about walking like a duck and quacking?) Others, who live in the real world, have noticed just how bad it's gotten for most of us. And for some, ones who would have never dreamed they would ever be in this kind of situation, it's going to get really scary.
*From Wikipedia - The National Bureau of Economic Research (NBER) is a "private, nonprofit research organization" dedicated to studying the science and empirics of economics, especially the American economy. It is "committed to undertaking and disseminating unbiased economic research among public policymakers, business professionals, and the academic community." It publishes NBER Working Papers and books. The NBER is located in Cambridge, Massachusetts with branch offices in Palo Alto, California, and New York City.
The NBER was founded in 1920. Its first staff economist and Director of Research was Wesley Mitchell. Simon Kuznets was working at the NBER when the U.S. government asked him to help organize a system of national accounts in 1930, which was the beginning of the official measurement of GDP and other related indices of economic activity. Due to its work on national accounts and business cycles, the NBER is well-known for providing start and end dates for recessions in the United States.
The NBER is the largest economics research organization in the United States. Sixteen of the 31 American winners of the Nobel Prize in Economics have been NBER associates, as well as three of the past Chairmen of the Council of Economic Advisers, including the current NBER president, Martin Feldstein. NBER research is published by the University of Chicago Press.
Posts: 17280 | Location: Lincoln Place, Granite City, IL, USA | Registered: 06-03-02
All kinds of mixed signals. Some retailers are showing a quarterly profit, others aren't. Ford Motor actually was out of the red. No surprise that big oil is doing well. The Dow is still above 12,000. The dollar is in the doldrums, but some say the Euro will take a hit in the fall. Housing starts and house sales are down. Unemployment seems to be in good shape. Gold and silver are up as are grain prices.
I think recession is ultimately in the eye of the beholder.
Posts: 7650 | Location: On Vacation | Registered: 06-06-02
Liberals would dearly love for the US to be in a recession now for only one reason: because they hate George Bush.
For the love of St. Christopher, grow up.
Except for a few tourist islands, the US has the most powerful economy in the world, and we are currently very close to the lowest unemployment in our nation's history. We will have to be in a recession for four or more consecutive quarters before we ever notice any substantial reduction in our standard of living.
Give your president some credit for a change. He has certainly earned it.
Posts: 94 | Location: United States | Registered: 06-01-08
If you ask the media, we have been in one for some time. And, I think, this is important to consider. Economics is a social science, and to the extent that people are made to believe we are in a recession, a recession will be self-fulfilling.
The media do seem to hang onto the idea of a recession in election years when a Republican is President. Witness 1992. George H. W. Bush was laughed at for saying the we were no longer in a recession. Yet economic reports came out just after the election indicating that the recession had been over for six months. Bush had been right, after all. Yet the game was over. The media won.
The United States is a large economy. There are (always) pockets of recession. There are (always) counties in recession. There are often states experiencing recession to a degree.
Yet, for now, we are not in a recession. We have yet to experience even one quarter of decline in gross domestic product.
That may or may not be true of the current quarter. Yet there are signs of renewed vigor and we may be beyond some of the "crisis" situations that have commanded media attention.
"It's the economy, stupid" is always the big issue in an election year (this time around, perhaps, paired with our military efforts overseas). A turnaround, from a political perspective, would certainly confound and disappoint those who want a different party in the White House.
A fair question to ask is: why have the media been reluctant to report that we have had six and a half years of growth under the Bush Administration (following a recession inherited from the Clinton years)?
And why have the President's detractors been incorrectly mouthing off about how terrible the economy has been for much of that time?
Posts: 7921 | Location: in the backwoods of North Carolina | Registered: 06-07-02
As pointed out in one of the articles I linked to, the start and end of an "official" recession is something decided after the fact generally, sometimes several months after the fact. Fuse demonstrates this when he points out that 1992/Bush story. Further, the people generally accepted as deciding what is ir isn't a recession point out that negative growth is not only not the only criteria, but not even alwys part of the criteria of deciding when we are in (or when we were in) a recession. For people who have a hard time making ends meet due to rising costs, and not rising wages (people who previously had no problems, most of whom are in the same job as before), an official designation isn't necessary. The same holds true for people whose job disappeared because of this "not a recession." Names of such things like that really don't matter when you can't make ends meet.
Posts: 17280 | Location: Lincoln Place, Granite City, IL, USA | Registered: 06-03-02
DG, I think the current situation has baffled many economists. Our County Manager recently attended two events, on two consecutive days, where the same very reputable economist was the speaker. On the first night, the economist proclaimed that we are in a recession. On the second night, he had revised his opinion to say that we are not!
Go figure.
My own company, providing industrial real estate for companies looking to expand, has seen much improved activity during April and May in comparison to the first quarter.
Posts: 7921 | Location: in the backwoods of North Carolina | Registered: 06-07-02
"Liberals would dearly love for the US to be in a recession now for only one reason: because they hate George Bush."
Speaking as a Liberal, this is, of course, as most recognize, an erroneous and very simplistic view of what Liberals think or how they feel. Generally speaking, Liberals hate what bush has done to our country. The difference between that and what I quoted may be too subtle for some to understand.
Vet, I suggest that you think about exactly why only 27% of the people think bush has done a good job. Are all of them "bush-haters"? (It feel SO good to use that term again. )
Oh, yes. I would LOVE to give bush credit for what he has earned. Few things would give me more pleasure than seeing him get exactly what he has earned. Unfortunately, I will have to settle for history's judgment of him as the worst of the first 43 US Presidents.
Posts: 17280 | Location: Lincoln Place, Granite City, IL, USA | Registered: 06-03-02
FUse, whether we are or are not in a recession, I hope what your company is experiencing is the start of a better economic situation for all of us, and I really don't care who gets credit for it.
Posts: 17280 | Location: Lincoln Place, Granite City, IL, USA | Registered: 06-03-02
Originally posted by DorianGreyed: "Liberals would dearly love for the US to be in a recession now for only one reason: because they hate George Bush."
Well, my psychoanalyzin' skills might a bit off.
So help me out: why is that we are in a superb economic period with very low unemployment, steady growth, job creation, and the 6th highest standard of living in the world, and yet liberals are anxious to change the definition of "recession" so that we can be in one?
Is it because they just "feel" like it's a recession?
Is it because there are some secret leading indicators that only liberals know about?
Or is it because there are millions of Americans who are currently defaulting on their housing debt and not because most Americans are close to being over-extended on credit cards and student loans?
Or is it because the liberal media keeps searching for the worst conditions in the US and trots them out for their reports but never reports success stories, and liberal viewers still haven't figured out that trick?
Did I miss one? Maybe you have a better one.
Under Clinton, unemployment was higher, GDP was lower, federal revenues were lower, growth was about the same but slowing by 2000, about 75 major corporate scandals were brewing (Enron, Global Crossing, Worldcom, etc.), the dot coms were busting, and yet Bush is the one who screwed us to the wall.
Funny how that works, that liberal logic.
Would it kill you to give credit where credit is due?
Posts: 94 | Location: United States | Registered: 06-01-08
I'm starting to give you credit for fooling me. At first, I thought you were going to be a contributor worth reading. But your one note concert is showing me otherwise. You are rapidly becoming far more work than you are worth. Please try to change my opinion by bettering the quality of your posts.
Posts: 17280 | Location: Lincoln Place, Granite City, IL, USA | Registered: 06-03-02
Clinton delivered us a real recession after he left office.
Clinton played fast and loose with the figures. His balanced budget was based on throwing the so-called Social Security trust fund into the mix. But then Clinton was always a putz.
Posts: 7650 | Location: On Vacation | Registered: 06-06-02
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