The Latest Data: Yes, It’s a Recession

There has been a lot of hand-wringing about whether or not the U.S. economy is currently in a recession. This morning’s data will, I think, lead to a near-unanimous view that the U.S. economy is in a recession. Not only was employment growth in February negative, but the B.L.S. also tells us that the previous two months were worse than originally thought. Over the past three months, non-farm payrolls fell at an annualized rate of about 0.1 percent.

As the chart below shows, in virtually every instance in which payrolls fell over a 3-month period, the NBER business cycle dating committee declared the U.S. economy to be in recession. Indeed, the only exceptions to this rule occurred over 50 years ago.

A few more thoughts:

1) The only thing to save us now: these are preliminary data, and a big upward revision could give a different view. But given the run of other recent economic data, it seems pretty darn clear that the macroeconomy is currently pretty grim.

2) What the politicos will say: given where we are in the political cycle, expect some commentators to point instead to the survey-based measure of the labor market. These data are based on a survey of workers rather than firms, and tend to yield noisier estimates. And when numbers can jump around a lot, it gives plenty of scope for political operatives to choose the specific numbers that support the particular story they are trying to tell. Even so, there’s not a lot of good news in the survey data.

3) What many macroeconomists will be pondering: does this second recent recession challenge the view that we are in the midst of a “great moderation,” in which the business cycle has been tamed?

4) The chances of a recession, according to Intrade.com, have risen to somewhere around 60 percent. But these traders are predicting the chances of two consecutive quarters of negative GDP growth, rather than the decisions of the NBER business cycle dating committee. The latter seems much more likely than the former (although both are likely).

Further commentary: Paul Krugman writes, “It has begun“; Brad DeLong warns against “a natural human tendency to overreact to what is, after all, only a marginal data point,” but goes on to say that “it is time for words like `alarm’ and `grave concern,'” a message consistent with this roundup of other commentary.


Roberto Mendez

My forecast: no, we will NOT fall into recession this year, but the economy will lose momentum. Why? Well, the U.S. government still has room to maneuver -- it can lower interest rates several additional points, and up expenditures several additional millions (which would of course mean a larger deficit and upwards pressure on interest rate, but this in the long run). So expect a partial recovery this year, and a recession in about two years. And the epicenter will probably be China, not the U.S.

Richoid

Instead of 100 billion cash stimulus, we should make 100 billion available in no-interest (for 5 years) and no payments (2-3 years) to homeowners to make their homes at least 30% more efficient.

This would create jobs in the construction industry and beyond, fight global warming and air pollution, raise the value of homes, lower the cost of owning the homes, and marginal properties (with deferred maintenance problems like roof and window issues) a way to bring a house up to code and more saleable.

Instead of a one-month blip in the economy, we'd get a 3-5 year strengthening, and it should, in theory, bring down the cost of solar and other technologies, based on volume of sales. By the time the payments start, the houses would have re-valued and the money would be recouped by the government over time, to pay off the debt created by the loans.

THAT would be a stimulus.

anon

It seems to me that the last huge boom in the economy occurred right after they raised the minimum wage. Call me crazy, but it seems like that might be a great economic stimulus. Those folks are very likely to put all increased income directly into the economy rather than hoarding it. I've heard it said that that would cause fewer jobs, but really, who hires people they don't need, even if labor is cheap? You just can't outsorce Wal-Mart jobs. You have to have somebody to work in the stores. And the pay packages of CEOs indicate to me that these companies have some extra funds that could be allocated to salaries, if their top execs were not so richly compensated - it's just a matter of where they choose to spend their salary dollars. Of course they'll pay their lowest ranked workers the least they can get away with, if they can get themselves an extra Mercedes or five.

C Sarles

Is Bush going to hold a news conference, announce that he is not scared of recession, and tell the world economy to "bring it on"?

It would be funny if he did. Of course, his ruinous foreign policy has led to an all-time high in the price of oil, which contributes mightily to inflationary pressures. Since demand for oil is so inelastic, people will cut costs elsewhere, e.g. on keeping their workers employed. So I guess he doesn't need to ask for recession ... he's already created it.

I think it's going to be a very hard sell for McCain to say that he will break with the policies that have led to this recession. As with the last time democrats took the white house, it must be the economy. And this time, the sitting president is far more stupid.

Jeff

What, our economy isn't already based on cannibalism?

m

First, you said a recession was declared "in virtually every instance in which payrolls fell over a 3-month period" for the past 50 years. Not true, look at 1984-1986 and 1995-1996.

Second, I'm going to point out that political administrations have a lagged effect. So, a recession that happens in the first couple of years of a Republican administration was likely caused by the Democratic administration before it. For example, see 2002 and 1982.

Finally, a recession is defined as shrinking GDP. While payroll might be a good indicator, it's not perfect and somewhat confuses the issue.

jeff dunford

Given the sort of government Americans have tolerated for the past 30 years, it should come as no surprise that the USA is going the way of the Dodo bird. In 20 years time we'll be lucky if our economy isn't built around the twin pillars of subsistence agriculture and cannibalism

JohnF

You might define what you mean by recession before asserting we are in one.

The usual definition -- two consecutive quarters of declining GDP -- is not hardly a certainty, and we're not in even one such quarter at the moment.

Walker Peterson

I couldn't agree more with Sam (No. 7). Issuing one-time meagre credits to tax payers is not an effective way to stave off a broad economic decline. Investment in public works is. Other ways to help stimulate the economy include extending unemployment benefits -- a measure sorely needed in this time of increasing job losses and declining employment opportunities, meaningful measures to help beleaguered home buyers now facing repossession and investment in a meaningful alternative energy program on a grand scale. Oh, and how do we pay for all these things? For one, how about ending our fruitless endeavors in Iraq. Secondly, Why not tax the rich at a fair rate, proportional to their huge gains in income over the past decade while the average Joe has seen his income decline or remain static. Of course, don't expect any of this from President Bush or any other Republican.

Scott

This serious recession potential is finally becoming realized because of numerous influential factors in the economy. The mortgage crisis is only one part of the problem. Another large issue connected with the mortgage crisis and the loss of wealth for many Americans is the contraction of the new housing construction industry. The contraction of the new housing industry will hurt construction and good wages connected associated with the low skill industry.

We have gone from issuing permits in Mar. 2005 for 211.5 down to a level of 75 in term of relative permits issued. This large reduction of issued permits takes a while to become realized. Houses take six months from permit to finished construction. So I believe the job This housing bubble hurts everyone because everyone will feel less wealthy due to the glut of houses on the market which will eat into their equity. Some people will feel the pain of losing their jobs due to this contraction. And everyone will eventually feel some sort of the pain and the pull back of consumer demand may devastate the U.S. Economy.

Makes sense though. Leaders of United States and people currently in power have not really seen the failure of the markets and the ability for people to drastically change their behavior in the economy. America has become comfortable with business as usual. The memories of the Great Depression have basically ceased to exist because the majority of people who alive and conscious of the time are now no longer with us. But the world has changed and the U.S. as a country will need to find ways to address these problems.

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Chris S.

@We Can Only Hope:
Remember, when something's bad and a Republican is in office, it's "the incredible mess they've made".
When it's a Democrat, it's "the vast right-wing conspiracy".

We Only Hope We Can

FDR would extend our recession, don't hope for that.

Artful Dodger

Sorry We Can Only Hope -
The more likely scenario is that a Demcrat will get elected and spend two terms fixing things (just like Bill Clinton) - only to have a republican elected in 2016 who will subsequently cut taxes on the rich so much that the cycle will begin again...

mattr

I too believe that we are already in a recession and the deniers are simply trying to protect their leader from blame (as always). However, no one seems to be discussing the "fact" that this will be the second recession of the current administration. I believe that a double dip recession combined with all of the other economic failings of this administration are ample proof that conservative economic policies do not work. I wish that the people of the US would see this and stop being brainwashed by the "tax and spend" mantra the Republicans use to create fear in voters. I would much rather have a robust economy based on realistic tax policies and control of spending than have a "cut taxes and spend even more" administration at the helm. It seems the Democrats are more capable of fiscal responsibility than are the "conservative" Republicans.

A vote for McCain is a vote for continued fiscal irresponsibility and the likelihood of an economic downfall (and for all the other failed Bush policies).

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Pete

Good thing the Fed is focused on making things worse. As if this bumbling administration's moves weren't bad enough, along comes the Fed to punish earners and savers even further. Propping up prices at all costs, and rewarding borrowers. Why does America borrow instead of save? There's one reason. With the dollar devaluing at a record pace, it doesn't make much sense to save.

We Can Only Hope

The one bright spot in this nation's current financial disaster is that if the Democrats implode and McCain is elected, at least a Republican will be in office to take responsibility for the incredible mess they've made. Four years from now, maybe the country will be disgusted enough by the greed and rapacious plundering of our national resources to be ready for an FDR type.

FGGreene

Hmmmm...8 of the 10 recessions on the chart occurred during Republican administrations. I wonder if what that says about the effectiveness of Republican economic policy.

Republican rhetoric seems always to try to take credit for the good economic times during Democratic administrations while denying any blame for the lousy times during their own.

We should have realized by now that for all their "pro-market" rhetoric, Republicans just don't know how to run an economy.

Sam

In addition to the comments above, Our beloved president is issuing a $300 -$1,200 credit to almost each and every citizen. Will these citizens be spending that money once it is received? Of course not! This money will be immediately spent on paying down debt.

A wise president would have started a number of public works projects that would be repairing our failing infrastructure. This would put money in the hands of the unemployed, while guaranteeing that the US got something for its money.

This current plan will yield nothing but additional money for the credit companies

Michael Tashman

I'm confused. From the graph it appears that every other NBER-declared recession was accompanied by a fall in nonfarm payrolls of at least 2% (and many greater than that). The current drop is 0.1%. While it is certainly significant that this is the first time jobs have decreased since the last recession in '02, isn't it also an important difference that -- as of yet -- that decrease is at least 20 times smaller, proportionally, than other recession payroll drops?

Michael Tashman

And I must add that when numbers jump around a lot, it gives plenty of scope for reporters to choose the specific numbers that support the particular story they are trying to tell.