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, 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.


This has been a funny read. Mostly, politically biased views on both sides. The left side stretching the fabric of economic reality to blame republicans for everything, and the right playing quite the economic apologists.

The truth is that a president has less effect on an economy than the left thinks (congress has a far greater effect). However, a President CAN INFLUENCE an economy, or initiate an event which triggers a recession (as our current policies has done).

I actually consider that to be a good thing, as the real blame goes mostly to terrible poor management in our economy. The sooner we deal with this, the sooner we can move on. Our economy is in bad shape because the current management of most or our corporations is worse than incompetent. We are also in this situation because of our citizenry (yes, you and me...look in the mirror...that's where the blame goes first). We have been horribly greedy and terribly irresponsible to ourselves and even more so, to our kids and grandkids. We KNOW we shouldn't spend that money on that mcmansion or hummer...but we do it anyway, because we are probably the most selfish generation since the 20's.

For the last ten years we have stuck our heads in the sand, and now we are going to pay...and its about time...we know we are guilty, and only the guilty would act out so defensively when things go wrong...


Doug Wolkon - Author of The New Game

Recession Smession. Dramatic unemployment increases in financial services, construction and autos will be the real shoe to drop. Who will pay for all these billions of dollars of writedowns? Oh, I forgot, the Fed has the ability to actually print more food and oil - yeah right, was Bernanke ever taught the first rule of Economics: Land is Scarce. So how much of our newly printed paper is currently being bought by our social security system - talk about drinking your own blood. The welfare state will inevitably be forced to solve our huge inefficient costs of entitlements and armed forces. Bank real estate bought or leased during the peak of the market will also help force the banks into bankruptcy (Is that where the word bankruptcy came from?). The question is how much of the value of the economy did we allow the financial service industry to liquidate through their credit ponzi scheme based on perpetually increasing housing prices.

China's and India's manufacturing will slow accordingly and the natural resource exporters in South America, Russia, Middle East and Africa will also experience a significant slowdown (think how much less copper and petroleum China will demand if America's demand for plastic stuff, steel, and wood slows). In other words, China will also experience related unemployment in their manufacturing sector, which was built for our consumption growth (Is "consumption growth" an oxymoron?). The global economic slowdown may seem rapid in the near term, but it is a product of years of pent up rent and energy inflation (is there any other kind?) throughout the vertical integration chain of such an inefficient global production and distribution economy.

On the flip side, renewable energy growth is on the move (only growth industry in the world today) and will redefine the meaning of real or true equity (vs. today's borrowed or non-reneawable energy economy). The growth will fulfill Shumpeter's prediction of how true equilibrium will be achieved, where credit will only be provided on the bases of entrepeneurs' assets. Tomorrow's assets will be renewable energy and entrepreneurs will realize the value of securing their own energy at any cost, which will also drive the future value of real estate and rent. Walrus' vision of a "desired cash balance" will also be achieved producing our most "desired" renewable dividend stream in the form of energy.

Huge innovation profits will be achieved in Silicon Valley as the U.S. manufacturing industry will strategically and desperately move from autos to solar panels. And of course the construction and finance industries will strategically (or desperately depending on which way you look at it) b-line into the renewable energy sector financing renewable energy mortgages out of the same bank branches they recently built to expand their home mortgage businesses. Home Depot and other home distribution retailers (I can't imagine the pain for furniture stores right now) will also be forced to provide renewable energy equipment as opposed to more housing materials.

I can't wait as it most certainly will be a lot of fun to be alive during the renewable energy revolution. We just better hurry up and learn to appreciate the dividends of a renewable energy world!


Lee Coles

Yes, but no 'R' word, no GOP defeat in November. This is why Pres. Bush's staff told him to use the word 'slowdown' for his Friday statement. When last I checked, when something slows down, it takes a recess.

Patty C.

Many comments are interesting. I, too, have been affected by the times and economic situations. Since our great Democrat FDR established welfare and social programs, (needed at the time), our society has morphed into a "gimmie" group. Social Security has been "robbed" for other programs - (could say by democrats who wish to give more handouts) It's true that supply & demand do play a major role, it's true that whatever president/political group currently in power for a month did not totally defeat the dollar, it's true that the workers are paid too little, it's true that workers no longer demonstrate any type of company loyalty, it's true that the lower end workers probably find it more feasible to stay home with the kiddies and watch big screen TV, receive taxes they've never paid, sip beer, and stay in low-income housing than work, pay taxes, pay on a home, pay insurance, etc. It's a wonder that any family with a couple kids can afford to work. To feed your children, would you pay rent, babysitter, car payments, insurance, clothing, etc, or would you sit around doing nothi8ng and get it all for free? How do young families do it now?
We seem to be a blaming society -- "they" did it; "they: choose incorrectly; and so forth. Our society is now based upon supply and demand (no change here) and Greed -- more prounounced and transparent than years ago. We will have to PRODUCE something, and consume less. We will need to actually come up with viable sources of energy at reasonable cost, and make it available. We will need to reinstall a sense of pride in accomplishments and country. Changes will be slow in coming for those of us who see that only "they" need to adjust, not ourselves. What ever happened to Taft-Hartly? hmmmmmmm


Thanatos Savehn

I have no credit card debt. I've paid off my house. I've saved religiously. So I should be experiencing some Schadenfreude - especially since my former neighbor, about 6 years younger than me, in the same profession, but making about 60% what I make, has been struggling since he moved up to a $1.8 million house that he couldn't really afford - one with a huge pool w/waterfall, outdoor fireplace, etc and since my wife has reminds me about how awesome it is, seemingly incessantly.

Instead, I'm to be taxed and my savings erroded by inflation so that he can be saved.

How is this fair?

Michael Tashman

Wow, this comments section is really loaded with half-truths and untruths. Where do I start?

Re Anon (#23): The last time they raised the minimum wage was July 2007, as in eight months ago. Done wonders for the economy, eh?

Sorry Artful Dodger (#13) -- it did not take a Republican cutting taxes for the rich (or the middle class and lower class as he also cut taxes for) to start the last recession -- the Internet bubble burst while your favorite President was still Governor of Texas. (He must have been pretty smart to cause a nationwide recession from his desk in Austin, huh?)

Re G. M. Prabhu (#26): Wow, the Iraq war has certainly done a good job of of propping up the dollar!

Re James Stone (#27): You say the economy has been sliding downhill for the last 20 years. Please don't look at the data on increase in real wages (that means adjusted for inflation, by the way), increase in real household wealth, decrease in unemployment (5.7% to 4.6% -- see or stock market growth -- you might be disappointed!

Oh, and perhaps the most egregious: FinKid (#29) says that "if government could spend money on green energry [sic] and healthcare, then US could spend its way out of recession..." Sorry to break it to you, but healthcare is the federal government's biggest expenditure, bigger than Soc Sec (#2) and military spending (#3). If the current federal budget (Bush's most recent proposal = $3.1 trillion) is not enough to spend our way out of recession, than what in the name of Sam Hill are you suggesting?

I could go on, but this is tiring...



I'm guessing most of you are too young to remember the seventies and what happened when our country experienced triple cost petroleum

Many here seem to blame the political clime of the day because you want some one to blame, that is a little to simple an explanation and any one who hasn't done their home work on the subject buy into this fallacy

Or to put some name or designation they don't fully understand to the events unfolding because that's the topic they are working on in their business classes at the moment (been their done that)

While this has a little to do with what is going on, it is by no means what is to blame

Truth is, if you look at the bigger picture

Simple supply and demand economics is at play here

China, India, Russia, and the war have put huge demands on the available resources (not only petroleum but all metals and consumable goods to boot)

Since petroleum costs have more than tripled again, every thing else will follow suit

Pure and simple economics on a grand scale only repeating itself from 30 plus years ago

If you want to invest in something, do your homework on events unfolded in the 70's, 80's, and 90's, and invest in things that went thru the roof in the past

Commodities will go up, disposable income will obviously drop

Long term investments may be property since this is a product tied to disposable income

Short term investments may include going long in the commodities markets

Companies are going to need restructuring to meet rising costs and until our country hits an equilibrium with disposable income and product again

We will just have to ride out the upcoming rollercoaster



We have likely been in a recession for some time. But published official statistics from the BEA don't reveal it. It's just that their method of measuring whether the GDP is expanding or contracting has been progressively distorted over more than a decade.

The real GDP equals the measured gross GDP reduced by the rate of inflation in a given timeframe. The inflation figure is where most of the mischief arises. For purposes of calculating GDP the inflation figure is called the GDP deflator and, though not quite identical to the CPI, it tracks it closely. So, if the inflation number is understated, the real GDP comes out correspondingly larger.

Take a close look at how the government determines the CPI. Google it, but beware official obfuscation. See if you believe that the official approach produces a balanced measure of consumer cost inflation. I think it understates it pretty outrageously. And, therefore, if so, the real US GDP has been negative for longer than just a couple of quarters. Most people just feel it in their gut.
Pretty strongly, too.



I love it when people say that certain politicians or political parties can't be blamed for something, and then turn around and say the blame can be placed on factors directly influenced by the decisions made by these politicians. It's not the president's fault that we've done nothing about the rising cost of health care but make it worse? It's not the president's fault that he packed the Department of Education so full of Sallie Mae employees that it's primary function for the past few years has been letting lenders off the hook and not actually tackling issues like rising education costs? It's not the president's fault that he and his economic advisers actively pursued a policies knowing they would devalue the dollar for years hoping that it would somehow assist the growth of the economy? It's not the president's fault that he runs a government that's *extremely* friendly towards corporations and corporations, NOT citizens, are the only entities that actually recovered since the last recession?

His entire focus since coming into office has been to extend the tax cuts for the rich, even pushing for it weeks ago in a speech. The economy is coming down around everyone's ears, thanks at least in part to his own failed policies, and his eyes are still focused on that one prize. And you're trying to tell me that he's just playing a bit part in this whole scenario? I would give anything to see what kind of condition we would be in if he had cared half as much about keeping the other 99% of us solvent as he does about making the top 1% even richer than it already is. But as long as the wealthy can afford good health care and education don't delude yourself into thinking he's going to concern himself with 'fixing' it. As long as he and his wealthy buddies are taken care of it's already fixed.


Mike F

A recession is two quarters of negative growth. This has not even come close to happening. So, you can trust a chart about employment growth and make whatever assumptions you want about it or you can do some math.


I guess it was 24+ years go that I figured that the housing & NYSE were treating us quite well. However, my seious sense of "the American system' would evolve into a simple reality that the new mid-class; us being well off wouldn't hold & that the reality is that we'll end up in an economic pressure that will help the well off & undermine the hard working, sound investing middle class. It looked good, but we'll never have a true econoimic opportunity.

Johnny E.

The trouble with trickle-down economics is that by the time the money gets down to the people who need it, it's only a trickle. All the productivity gains didn't go to the people who increased the productivity.

This guy has an MBA from Harvard? Was he sleeping in class? What did he major in, Voodoo economics? Surely there must be a more productive way to stimulate the economy than giving tax breaks to people who don't deserve it or giving people enough money to fill up their gas guzzlers a few times.

Forget about having to ask "who lost Iraq?". People are going to ask "who lost the dollar?".

It's time to start tightening our belts and start producing something useful instead of just wasting our money on bombs and speculative investment paper instruments.



What are the odds this story was linked from the DailyKos or some other far left site? Or are the comments always this economically ignorant on an economics blog?

Mike Lazzaro

I must say, I'm amazed at the sheer level of misunderstanding in the comments posted so far - Badger (#28) mentions this, but I'm going to extend his point a bit.

Recessions are an incredibly complex concept, as the system they occur in - the global economy - is also incredibly complex. Comments such as "See? This is what happens when we elect a Republican!" and "Tax credits are stupid!" are, at best, useless - and at worst, they support the idea that recessions are caused (or halted) by a single factor. The people who work on these issues - especially the scientists at the Federal Reserve, NBER, and other economic organizations - are highly trained professionals who have often devoted their lives to answering these problems -- and we still don't have good solutions to them!

I'm not claiming to know the answers to these questions, and I'm no expert, but I know more than enough to know that neither George Bush, the progressive tax system, or any other single factor is to blame. A (definitely not exhaustive!) list of the factors that would need to be considered, to even *begin* understanding the current state of the economy would include:

1. Why the valuation models for mortgage backed securities (and other debt-related financial instruments) were so far off the mark, and why they persisted for so long.

2. Why so many homeowners were willing to take out adjustable-rate mortgages that they wouldn't be able to afford if rates went up.

3. The actual prices and environmental costs of the various types of energy available to us currently, and those proposed, including fossil fuels (of various types), ethanol (with and without the current government subsidies), solar, wind, geothermal, and hydroelectric.

4. The reason why Americans savings rates have dropped so much, and what the effect of this is on various parts of the economy (last I checked, I believe the savings rate was still negative).

5. The 'real' problems with healthcare, including rising overall costs, lack of access to care, and lack of focus on preventative care (to name a few) -- in addition to the commonly discussed role of insurance, whether universal health care is viable and cost-effective.

6. The role of education, the the how and why behind the rising costs of higher education - and what this means, given the new 'knowledge economy'.

And perhaps most importantly, we must remember that *correlation is not causation!* Even if every recession in the modern US occurred when Republicans (or Democrats) were in office, this DOES NOT mean that Republican policies cause recessions! It could, for example, be the case that recessions have nothing to do with what party is in power, but that 'better' economic times make people more likely to shift towards Republican views.

I mean, does no one remember the article in this very blog a few months ago, about how the president may not have that much of an effect on the economy?


Paul G

The last time we tried to fight a war without paying for it, back in Nam, it took our economy well over a decade to recover. And that was when the Europeans were weak, the Japanese had barely gotten started, and the Chinese and Indian economies didn't even exist. Now our debt is greater, oil prices are higher, our education and infrastructure are in worse shape, much of our industry is gone, two great powers -- the EU and China -- are in a position to surpass us, and India may not be far behind.

In the past, our great strength has been the ability to admit our mistakes, roll up our sleeves, and do whatever it takes to make things work. Can we pull it off again, or are we too mired in ideology this time around? Who knows? But it will be an interesting challenge...


What we are seeing in this developing recession is a gradual unfolding of the idea that neo-conservative free market policies will lead to an economic utopia. What neo-conservative policies have brought us is a spending binge the likes of which America has never seen. We have been brain-washed by delusional utopian promises that "free market policies" will unleash hidden economic potential and bring us a world where "all ships are lifted by a rising tide".

Our beliefs in this utopian dream are so strong that we have been willing to, as a society, spend without saving, because we are confident that the rising economy will save us in the future. We were even encouraged to spend during wartime, which goes against all common sense. In the past, wars were a time of austerity in our society. Instead, we have been encouraged to open our national credit card, to spend, to live it up.

We need to realize that neo-conservative free market ideology is no less extreme and utopian than was communist ideology in Soviet Russia. Both ideologies sought to create a utopian paradise. Both were dreams that sounded reasonable on paper, but fell apart when implemented in the real world.

We need to realize that the world is not perfectible. Humans are not perfectible. The economy is not perfectible. There are no magic bullets that can solve all of our problems, and attempts at finding huge solutions to unsolvable problems are ultimately self-destructive. All we can do is to seek to minimize our problems by seeing the world the way it actually is, and not merely as we wish it to be.



Recession is just a part of an economic cycle, is it not? US Multinationals will most probably beef up their international market base to keep wall street happy from quarter to quarter.

If government could spend money on green energry and healthcare, then US could spend its way out of recession without having to lower the interest rates too much. Reduction in the interest rates has not translated into easier or cheaper credit. That is not likely to happen as long as securitization of debt has a tepid market.

If the governemt spent on the right stuff and businesses focussed on long term value, then the US could come out stronger. Afterall, who works harder than the americans and who dreams bigger than us?


Most of the comments above only prove that economic ignorance due to political dogma is yet popular and prevalent. Could you please care to explain how is it that a slowdown (or maybe a recession) that is yet minor in intensity compared to previous ones, and happening seven years after the last one, makes for *macroeconomic management incompetence*? You only need to look again at the graph to see that this slowdown/recession was almost overdue by historical standards.

James Stone

How long has the economy been sliding downhill?"
About 20 years...but its a long story.

G. M. Prabhu

I've read reports that the Euro is much stronger than the dollar and is being considered as an oil currency standard instead of the dollar. These reports, as well as Alan Greenspan's new memoir, indicate that the Iraq War was about maintaining the dollar as the oil currency standard.

Are these reports true, and if so, for how many years has the economy been sliding downhill?