In This Article
30-Second Summary
Headline Link: ‘Most Economists in Survey Say Recession Is Here’
Video: ‘The Worst is Behind Us’
Background: Defining recession
Historical Context: Other economic downturns and questions over terminology
Opinion & Analysis: Economy wonks give their take
Reference: FindingDulcinea’s Web Guide to the U.S. Economy; economic cycle data
Related Topic: ‘Foreign Banks Mull Whether to Prop Up the Dollar’
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Federal Reserve Chairman Ben Bernanke
Is America in a Recession?
by
findingDulcinea Staff
by Anne Szustek
The 2008 U.S. economy has not fit into the textbook definition of a recession, but most economists say the country is in the midst of a slump.
The 2008 U.S. economy has not fit into the textbook definition of a recession, but most economists say the country is in the midst of a slump.
30-Second Summary
The National Bureau of Economic Research, a nongovernmental committee that The Economist termed “the official arbiter of American business cycles,” defines a recession as 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.”
But having a clear definition doesn’t mean that economists agree.
The International Monetary Fund said in April there’s a 25 percent chance we’ll see a recession this summer. Federal Reserve Chairman Ben Bernanke has slashed interest rates seven times over the past eight months. And 36 of 51 prominent economists polled by The Wall Street Journal in March said that America is officially in an economic downturn.
Others are more upbeat. Berkshire Hathaway CEO Warren Buffett told shareholders at the company’s annual meeting last week that there is potential in the U.S. markets, and U.S. Treasury Secretary Henry Paulson said Wednesday that the economy is on the rebound following an “inflection point.”
But Paulson’s words indicate that the economy had indeed bottomed out. Analysts may not be able to determine correctly whether or not we are in a recession cycle for as much as 18 months.
Such questions over defining bearish market trends are nothing new. According to The New York Times, “The Bush Administration, the Federal Reserve and many private economic forecasters say that the … impact on oil prices and consumer confidence, caused the recession, and they say it is now coming to an end.”
That article ran in April 1991.
But having a clear definition doesn’t mean that economists agree.
The International Monetary Fund said in April there’s a 25 percent chance we’ll see a recession this summer. Federal Reserve Chairman Ben Bernanke has slashed interest rates seven times over the past eight months. And 36 of 51 prominent economists polled by The Wall Street Journal in March said that America is officially in an economic downturn.
Others are more upbeat. Berkshire Hathaway CEO Warren Buffett told shareholders at the company’s annual meeting last week that there is potential in the U.S. markets, and U.S. Treasury Secretary Henry Paulson said Wednesday that the economy is on the rebound following an “inflection point.”
But Paulson’s words indicate that the economy had indeed bottomed out. Analysts may not be able to determine correctly whether or not we are in a recession cycle for as much as 18 months.
Such questions over defining bearish market trends are nothing new. According to The New York Times, “The Bush Administration, the Federal Reserve and many private economic forecasters say that the … impact on oil prices and consumer confidence, caused the recession, and they say it is now coming to an end.”
That article ran in April 1991.
Headline Link: ‘Most Economists in Survey Say Recession Is Here’
The U.S. economy is now officially in a recession, say 71 percent of the 51 economists polled by The Wall Street Journal. The unemployment report for February showed a loss of 63,000 jobs. The economy is expected to grow 0.1 percent this quarter and 0.4 percent in second-quarter 2008, according to an average of forecasts made by those polled.
Source: The Wall Street Journal (registration may be required)
Video: ‘The Worst is Behind Us’
Treasury Secretary Henry Paulson told financial writers Henry Blodget and Aaron Task on the May 7 installment of “Tech Ticker” that the U.S. economy has borne the brunt of the credit crisis. The bottoming-out of investment bank Bear Stearns, leading to a Fed-backed purchase by rival banking firm JPMorgan Chase, “was an inflection point,” said Paulson.
Source: Tech Ticker on Yahoo Finance
Background: Defining recession
“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,” writes the National Bureau of Economic Research, a privately run, not-for-profit committee of well-regarded U.S. economists. “A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion.”
Source: National Bureau of Economic Research
The CBC expands upon the NBER’s definition, pointing out that it can take up to a year and a half to be able to identify a recession accurately. The Canadian broadcaster cites an old economic adage: “It’s a recession when your neighbor loses his job. It’s a depression when you lose your own.”
Source: CBC
Historical Context: Other economic downturns and questions over terminology
On April 26, 1991, the NBER identified that the country had been in a recession since July 1990—before the Iraqi invasion of Kuwait that sparked the first Gulf War. The committee based its conclusion on data that showed contractions in four areas: “jobs, personal income, sales and industrial production,” wrote The New York Times.
Source: The New York Times (free registration may be required)
The Economist quipped in November 2001 that its “R-index”—the number of times that the word “recession” appears in American newspaper copy—has been an accurate measure of whether an economic slump was imminent; and that the downturn that marked the early 2000s was no exception. “Last January The Economist’s poll of forecasters predicted, on average, that GDP growth would be 2.3% in 2001. Now the country will be lucky if it sees growth of 1%. Even in early September few economists were forecasting a recession. Now it appears that one had already been under way for almost six months” before the terrorist attacks of Sept. 11, 2001, writes the magazine.
Source: The Economist (subscription required)
During past recessions, the U.S. government has been slow to pass stimulus packages. Said economist Bruce Bartlett, who worked for the administrations of Presidents Ronald Reagan and George H.W. Bush, “History shows very often these programs even go on for years and years after the recession is over.” During the eight recessions since the end of World War II, “only once was the stimulus package passed before recession’s end.”
Source: The Arizona Daily Star (AP)
Opinion & Analysis: Economy wonks give their take
Eric Ames of InvestorCentric questions whether the economy is in recession vis-à-vis government figures, which showed a loss of 63,000 American jobs in February. “Typically in a recession, jobs are a trailing indicator. It takes some time for businesses to start feeling the effects of a recession which ultimately lead to layoffs. … I have felt for sometime that we are looking at an unavoidable recession, and to me this is just the first round of “nice layoffs.” I suspect that there will be much harsher ones still to come.”
Source: InvestorCentric
The IMF said in its semiannual World Economic Outlook, released in April, that there is a 25 percent chance the global economy will see a recession this year. The organization defines recession as “growth of 3 percent or less.”
Source: findingDulcinea
In early April, Federal Reserve Chairman Ben S. Bernanke gave a strong acknowledgement that the nation may be experiencing a recession. The Fed chief offered a bleak assessment of the U.S. economy, saying that it may shrink in the first half of the year.
Source: The Washington Post (free registration may be required)
Warren Buffett, CEO and majority shareholder of conglomerate Berkshire Hathaway, appeared on CNBC following the March release of his characteristically candid shareholder letter saying that the United States is in a recession. Buffet’s statements conflicted with those of President Bush, who had said a few days earlier that although the United States is experiencing an economic slowdown, it is not in a recession. During his annual shareholder meeting earlier this month, he warned investors that while the credit crunch may be nearing an end, “you may have something better to do with your money than buy Berkshire.”
Source: findingDulcinea
Salon writes that economists are no longer questioning whether the country is in a recession but when it started: November or December. Economist Nouriel Roubini wrote in late March, “It is now clear that the U.S. and global financial markets are experiencing their worst financial crisis since the Great Depression.” He advises Americans to economize, but adds that, according to the textbook definition, America “is nowhere close” to the 10 percent or greater decline in GDP over two quarters that characterizes a depression.
Source: Salon
Last fall, economists were predicting a mild market downturn; however, they’re now saying we’re headed toward a full-blown recession. Economist Robert Parks stated that there is a 60 percent likelihood of a “Bush depression.” Ed Yardeni, president of Yardeni Research in Great Neck, N.Y., is extremely concerned about the economic situation, but predicts only a “modest recession,” and believes that America’s "basic capitalism and materialistic instincts" will soon reassert themselves.
Source: The Christian Science Monitor
The Los Angeles Times draws parallels between the Great Depression of the 1930s and the current economic crisis. But the article also stresses the differences between then and now: “U.S. unemployment reached 25 percent during the Depression; last month it was reported at 4.8 percent. The international industrial economy was a shambles in the ’30s. Today it is coming off a global boom.”
Source: Los Angeles Times (free registration may be required)
Reference: FindingDulcinea’s Web Guide to the U.S. Economy; economic cycle data
FindingDulcinea’s Web Guide to the U.S. Economy includes an outline of the history of the American economy, an overview of federal economic oversight organizations and suggestions for where to stay on top of financial news.
Source: findingDulcinea
The National Bureau of Economic Research compiled a list of American economic cycles from 1854 to 2001.
Source: National Bureau of Economic Research
Related Topic: ‘Foreign Banks Mull Whether to Prop Up the Dollar’
Foreign central banks are considering a coordinated effort to buy U.S. currency to support its international trading value. Economists debate the plan's effectiveness.
Source: findingDulcinea
Rising unemployment and inflation have impacted the purchasing power of Americans. More than 28 million Americans are applying for food stamps this year, the highest number since the program’s inception in the 1960s.
Source: findingDulcinea
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