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April 30, 2008

It still feels like a recession

So economic output only scraped zero in the first quarter instead of dipping below, at least according to preliminary estimates. Gross domestic product grew at an annual rate of only 0.6 percent from January through March, the Commerce Department said.

Bloggers are asking: Where's the recession? A rule of thumb for a recession -- often cited in news reports -- is two consecutive quarters of negative GDP.

But the National Bureau of Economic Research's Business Cycle Dating Committee -- accepted by most economists as the official recession arbiters -- looks beyond GDP to identify economic setbacks. In fact the last official recession declared by the NBER -- in 2001 -- included only one quarter of shrinking GDP. In 2001 there were two negative quarters, but they weren't consecutive. Output shrank in the first quarter, but that was mostly before the official recession began in March. Then output grew at a 1.2 percent annual rate in the 2nd quarter. In the 3rd quarter the economy gave all that up and more. In the fourth quarter -- right after 9/11, interestingly -- output grew at a 1.6 percent annual rate. NBER declared the recession over in November.

NBER also looks closely at employment, which shrank sharply in 2001 and is shrinking now. The U.S. job base has now shrunk for three months in a row, starting in January. This Friday we'll get the preliminary report for April. In 2001 and 2002 -- an economic downturn considered mild by many economists -- the job base shrank for 15 months straight.

UPDATE: Barry Ritholtz says it's totally a recession because the government's inflation measures are flawed. By underestimating inflation, he says, the Commerce Department is overestimating economic growth. (Bean counters try to strip inflation out of their calculations to get the "real" amount of output increase.) So if you include a better inflation measure, output really did shrink in the fourth quarter and the first quarter.

Posted by Jay Hancock at 12:01 PM | | Comments (6)


Thanks for pointing out the definition of recession - two consecutive quarters of negative GDP growth. Can you pass that along to your friends in the media so we can stop debating whether we are in a recession? The facts are in and the debate is over - no recession.

GDP growth is probably negative if factoring in inflation. The way recession is defined (no inflation factored in), it is hard to have a recession when there is high inflation. Say the GDP grows by 50%, but the inflation is 100%. According to current formula, GDP is doing great. And of course, the CPI is a fraud to measure real inflation.

Ed (and Jay),

2 consecutive quarters of GDP contraction is not the only metric for identifying recessions. According to the econo-geeks at the National Bureau of Economic Research, a recession is defined as a "significant decline in economic activity spread across the economy, lasting more than a few months."

Their specific language is at the link bearby, but by their methodology -- and they are the official arbiters of such things -- this is a recession.

That is correct, there is NO RECESSION, just an economic slow-down as the Bush administration has been pointing out for a while now. Again, there is NO RECESSION. The press has done their best to talk everyone into thinking they are in a recession which could have become a self-fulfilling prophecy in itself.

Mr. Hancock also correctly points out that NBER is another authority on declaring recessions and they too are NOT DECLARING A RECESSION. Unfortunately, instead of seeing this as good news, Mr. Hancock can't help himself from "tempering" the good news with more of the same bad news we've heard for months now. Again, Mr. Hancock we have positive growth this first quarter, and we are officially NOT IN A RECESSION and never were. That's not the news you were hoping to hear, was it? But, it is the truth and you need to face it.

Stop talking-down the economy. The economy is doing better than expected. Try reporting that instead of your perverted, self-serving, and negative speculation which only serves to further hurt the economy that you claim to care so much for.

Some blogs (including a comment above) are obfuscating this point by saying GDP can be up but we can still have a recession, which is true. The "GDP" growth reported today on the good side of 0% was real growth in GDP; i.e. GDP growth divided by CPI growth, or growth over inflation. The first comment seems bulletproof. Cheer up, a recession has probably been averted.

This expansion will probably move from 5th place to 4th place in the list of longest expansions in the last 150 years. It just needs to keep expanding until August. Funny how the press hasn't mentioned this.

No recession. I'll just make up my own reasons thank you very much.

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About Jay Hancock
Jay Hancock has been a financial columnist for The Baltimore Sun since 2001. He has also been The Baltimore Sun's diplomatic correspondent in Washington and its chief economics writer. Before moving to Baltimore in 1994 he worked for The Virginian-Pilot of Norfolk and The Daily Press of Newport News.

His columns appear Tuesdays and Sundays.

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