What Recession?
"Unfortunately, I think that there is a better-than-even chance that we are headed into a recession in 2008,"
- Martin Feldstein, president of the National Bureau of Economic Research
The consensus from some experts is that the U.S. economy is slowing. Data, from employment to income to industrial production and GDP, gets poured over and analyzed by the National Bureau of Economic Research (NBER) - and the economy’s performance is addressed not for what’s happening now but for what’s to come. And that may be something that in reality, is almost impossible to predict with any real measure of accuracy.
If you want to go by the informal definition of two consecutive quarters of economic downturn I’d say - If you have to wait two consecutive quarters to make the determination that you’re in a recession – then you’re likely not in one. By the time it's determined that the country is in a recession, odds are the economy has already bounced back since the data reviewed streams on a lag of between 6 and 8 months.
Sufficed to say, the great prognostications of our economic experts are more subjective than anything else.
Now, maybe it's me but I don't know anyone who's financial situation (outside of the subprime crash) has really changed. Gas prices are within the same range they have been for the last two years, and my wallet is equally as light as it's always been (but that's more me than anything else). I've got a job, and those I know that didn't, had no problems finding a job. Maybe a handful of areas in a handful of states are already in a recession but I'm pretty sure that will always be the case regardless of what's happening at the aggregate.
But here we are, in the last year of President Bush’s second term and candidates, pundits and media monkeys (mostly of the liberal breed) have been throwing out the word “recession” and scaring the lot of folks listening. Always during a presidential election year do we hear: the economy is “the worst it’s ever been”. Everything now is always “the worst it’s ever been”.
But we know better.
The Bad
The subprime market crashed; we’ve been in a credit-crunch; there’s turmoil in the financial and housing markets. Home owners and investors are running scared and taking their money with them. The world watches our panic of a coming recession and the world markets respond. To help steer us into a recession, the eager media stirs the pot and pours over our fears touting the economy is “the worst it’s ever been” and RECESSION!
The reality is that yes, we’ve got some problems but nothing we can’t or won’t overcome soon.
The Good
We've been in a credit crunch but we're also seeing the light at the end of the tunnel. Despite an apparent crisis on the housing front – lack of building and hard markets, the value of homes has surprisingly held it's own with only mild impacts. We experienced slow growth going into Q4 of 2007 but many experts agree that growth will only continue to increase, as will employment and income, to supplement consumption spending in the first and second quarters of 2008. With the world markets responding to our domestic crisis – the dollar is weaker abroad and for economic stimulus - should shore up a competitive advantage in the short term for American exports.
Now, if we really want to buoy the economy for long term growth the government will eliminate corporate taxations and reduce regulations for American companies on foreign shores. Being competitive in the world arena will only result in huge financial gains back home.
Cheers!
Labels:
News and Politics
17 comments:
This reads like a bunch of Ben Steinery.
ouch.
-this reads like a bunch of Ben Steinery
Dan:
You are obviously one of the many brain-washed suckers sponging off the hype. Look at the facts. The nation is NOT in a recession. Employment is up, growth is up and the subprime debacle is leveling off. Just 3 months ago the Dow was at all time high. The liberal media yells, Recession! simply to push their own political agendas during an election year and they get away with it because suckers like you buy into every word. The economy is in a downturn, downturn ^=recession.
downturn^=recession? I guess "does not" was too long. You must be a programmer.
In defense of my buddy "Dan-the-man", he might be a liberal weenie-type but he is NOT the sponge-y type. ;-)
Dear Annie -- so many things so wrong with you comments, I don't know where to start... I take it you have no clue as to what "Ben Seinery" means.
#My comment was a (snide) comment that Deanna's post was not up to her usual standards
#I never claimed we were in a recession*
#There are, however, many many ominous signs and few encouraging signs
#Your positive sign is that employment is up??? Seriously??? Technically, yes employment has risen ever so sloooooowly. Employment growth during the first 6 months of 2007 was less than 110k per month; during the last 6 months it slowed to an average of 82k per month; the preliminary numbers for January indicate an increase of 37k
#That damned liberal WSJ!!!
*Incidentally, where did either of you see "the worst recession ever" stuff? I have not read that anywhere.
#My comment was a (snide) comment that Deanna's post was not up to her usual standards
Hey! If I weren't sitting here with my tall glass of cold milk and a handful of tasty, chewy chocolate-chip/macademia nut cookies...I'd take serious offense to that buddy!
It's a comment about the post, not you sweetie. Sorry, this wasn't your best work.
Dan,
Most people make snide comments on such a polarized topic because they actually disagree with what’s being said. If that is true that you must disagree with Deanna’s topic which defends the point that we are not in a recession and we are not heading for a recession.
If you’re going to try and quote me at least do so accurately. Unemployment was not the only thing I mentioned as a positive if you reread my post. It was just one thing. I also didn’t say anything about ‘the worst recession ever’ though, I have seen a number of blogs that compare our supposed recession to that of the depression and post-depression eras.
-Craig
I can see signs of somthing happening. I am no expert by any means but construction is down tremendously. Probably because of the media hype and everyone is clinching their wallets.
David,
RE: the construction slow-down..
When I was on my cross-country road trip last summer I noticed an inordinate number of housing construction projects that had stopped only 1/3 of the way through completion, particularly in areas where growth seems very likely--at some point. The fact that construction in so many of these areas came to a stall so soon after it began seems an indication that the housing industry was building way ahead of the demand curve, and demand never caught-up.
Then bam - we get hit with the subprime debale followed by an economic [temporary] downturn.
So I’m curious, you say that construction is down tremendously (which I agree with of course), but I'm wondering how much of that downturn is resultant to the rampant building/lack of demand that was already in progress before the sub-prime crash...?
Craig-- first my apologies for misattributing the "worst recession ever" quote to you. That was Deanna (and I would still like to see a reference).
Apology over. As for misquoting you, mine was a much better job than yours. Your reference to your own statement was completely inaccurate: the original post referred to employment, not unemployment. In contrast, my reference to your statement was spot-on. If you want to fault me for incompleteness, fine. I had focused on your most plausible argument, but since you apparently want to highlight all of your points:
#”[G]rowth is up” - this is vague, but I’ll assume you’re referring to GDP. As with your employment argument, you are technically correct: real GDP did rise in the 4th quarter, albeit by only 0.6%*. Anemic growth is not an argument for a strong economy.
#”[T]he subprime debacle is leveling off” - There are really two issues here: 1) is it over (i.e., will we find any more dead bodies)? and 2) what are the effects of the subprime meltdown?
First: is it over? I hope it is, really I do. But the underlying factors don’t look great. For example, the ratio of home prices to rent is still significantly higher than in the past. Nationwide, home prices dropped 16% last year, and are forecast to fall more this year. and Bear Stearns just took a $1B short position on subprimes (of course, this could also be a strong contrarian argument that things have bottomed out ).
Second: what does it mean for the economy? Even if we are the end of the housing price drop, there are serious implications for the economy. A lot of consumption over the past 5+ years was driven by rising home prices as people took cash out of the homes (by refinancing) and spending the money on big screen TVs and boats and clothes and such. That is all pretty much over. Consumption (roughly 2/3 of the economy) is going to be pay-as-we-go (or less if we pay off debt). I don’t see how housing can be spun into an economic strength.
#”Just three months ago the Dow was at an all time high.” - I avoided this because it makes no sense to me: the stock market is not the economy. But if you want to argue that the DOW is a sign of a strong economy because of the October high, how do you factor in the DOW’s drop during the last three+ months (which wiped out all the gains it made in the 12+ months prior to October)?
*Advance BEA numbers, there will be two more revisions.
Deanna-- Craig has me on a roll blame him for what follows.
Craig thinks I disagree with your points, which is partially true. But so what? We rarely agree on anything (except perhaps wine). I would not comment with just a snide comment because I disagreed with you (I would, of course, include snide remarks in a larger comment!). My objection to the original post was mechanical, and I didn’t intend to comment further. But ...your post suggested that you would address three questions. You then directly address one question; answer a second by implication but never explicitly state your opinion and back up you reasoning with anecdotal evidence; then avoid the remaining question. Finally, you conclude with opinions not addressed elsewhere in your text. i.e., Ben Steinery
More specifically...
You start out great: a good context-providing quote and three related questions:
1) Are we in a recession?
2) Are we headed for a recession?
3) Who makes that determination?
There is an implied promise of a post that expresses you opinions, and presumably your rationale.
Then things go downhill with some minor issues*. You correctly identify the group that "officially" determines recessions (the NBER), but label their criteria as subjective and confuse the retrospective determination of the NBER with the prognostication of "experts."
But more importantly, you fail to deliver on the first two questions. These were the questions I saw as the most important.
You do seem to imply that we are not in a recession because 1) you have a job, and 2) everyone you know that wants a job has one as well. While I do not doubt the accuracy of your observation, it represents one measure for a handful of data points. If you want to use yourself as an argument, you should go beyond employment as a binary measure: you are by any honest measure under employed.
Assuming that you do not think we are in a recession, do I disagree (to get back to Craig’s assertion)? No, I do not think we are in a recession. On the other hand if sometime later this year the NBER decides that we are in a recession and point to a starting date of December of 2007, I would not be surprised either.
*This is minor, but may have affected my perception: you start the next sentence, "The consensus from some experts..." What the hell does that mean? DO NOT WRITE LIKE THIS IN GRADUATE SCHOOL!!!!
Dan,
I'm not sure what point you're arguing here. I get that you didn't like my post, how it was written, or my follow-through. OK. This isn't English class but whatever. You also state that you agree that we're not in a recession but then say you wouldn't be surprised to find out later that we have been in a recession.
Heh?
A dichotomy in position that, to me, makes absolutely no sense.
My comment on employment, gas, etc was just a personal observation and not my sole argument against recession. In any case, OK - maybe my argument wasn't clear. I'll concede that.
The good and bad points were meant to reflect what has happened and in what time period as it pertains to the "two consecutive quarters" rule. Where I stated that the economy started going down in q4 of last year and experts agree that the economy has been experiencing growth - also spoke to the two consecutive quarters rule. Since we're still in the first quarter of 2008 and the economy is bouncing back already - I was attempting to suggest that based on the two consecutive quarters rule, we're not in a recession nor are we headed for a recession. I also tried to list some high-level observations such as the end of the credit crunch, home values, etc. to support that. Obviously, you feel my tie-ins fell short.
Clearly from your point of view I poorly supported my argument and I'm sorry you feel that way.
**Newsflash** we are in a recession!!!!
The fed has cut rates 3 times already and we’ll likely see even more rate cuts, down to the historic lows of 1-1.5%. Things are so bad, its already had an impact on global markets. I don't know if it's the worst recession ever but every sane, credible financial expert who sees what's going on with the markets (and yes, the markets are a good measure of economic stability), agree that this has the potential to be one of the worst recessions, in a very long time.
We didn't get here simply because of the subprime crash either which only revealed a greater, more fundamental problem with our flawed economy and the excessive spending going into the recession.
A recession is prolonged downturn.
I think it obvious that economic growth has dramatically slowed. Such is my perception, but that leaves contraction firmly within even a narrow margin for error.
That said, even if contraction started in December, that would not constitute a recession unless there was no growth before May.
My opinion, not that you asked, is that we will experience 12+ months of very slow growth with a few months of contraction mixed in. Not enough contraction for a recession, but so little growth to make it a meaningless distinction for a great many people.
This funny is so apropos...
Classic. Must be from the NYT. ;-)
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