financial hurricanes
Akira Suemori/AP
A pedestrian walks past a computerized display showing the FTSE 100 index in London.

You Say ‘Recession,’ I Say ‘Economic Downturn’

October 27, 2008 11:22 AM
by Anne Szustek
British politicians accuse the BBC of whitewashing the country’s economic state by not calling it a “recession.” The battle shows that, when it comes to the economy, language matters.

Lipstick on the Economic Pig, or Preserving a Pit-Bullish Market?

The BBC has been using the term “downturn” to refer to the United Kingdom’s volatile economy of late, on the grounds that the nation is not yet officially in a recession. But the Liberal Democrats, the third-largest party in the British Parliament, is accusing the radio and television broadcaster of using language to pander to government ministers.

“The BBC is a public service broadcaster and it should not seek to put a favourable gloss on what is a very bleak economic outlook,” Jeremy Brown, the party’s shadow chief secretary to the British Treasury, was quoted as saying in U.K. paper The Daily Telegraph. “The Prime Minister himself has conceded that Britain is in recession and that the economy will shrink.”
The BBC’s business and economic unit editor, Jeremy Hill, defended the broadcaster’s use of a lighter synonym for a bearish economy: “We may well be in a recession but we won’t get any official confirmation of that for a while yet. A recession is two quarters of negative growth and as soon as we’re in one, you’ll hear it from us.”

Official use of the word “recession” can carry significant weight. In the wake of British Prime Minister Gordon Brown’s and Bank of England head Mervyn King’s comments on Wednesday that the United Kingdom is on the verge of recession, the British pound fell to its lowest level against the U.S. dollar in five years, closing trading that day at $1.62.

Background: The language of recession

Stateside, former Federal Reserve Chief Alan Greenspan said Thursday that America is “in the midst of a once in a century credit tsunami” and that unemployment was likely to see a “significant rise.”

Soon after the opening bell on Wall Street Friday, the Dow Jones Industrial Average dropped by nearly 500 points, largely on the back of recession concerns—illustrating the role such comments can play on the financial markets.
According to the National Bureau of Economic Research, a nongovernmental group that is the arbiter of recessions in the United States, America is not currently in a recession. Stanford professor Robert Hall, the head of the business cycle dating committee, told Reuters earlier this month that the group had “not entered the territory of even tentatively considering” whether the country had reached the end of a period of economic growth that began in late 2001.

Hall admits that “We have been subjected to political pressure, which I’m not going to talk about. This has been an issue but we’ve stood tall on that.”

The group gives this definition of a recession: “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. Greenspan’s predecessor as former Fed chief and current Obama camp economic confidante Paul Volcker said at an Oct. 14 seminar in Singapore, “House prices in the U.S. are still declining. There are still more losses to come there. The economy, I believe, is in recession.”

Greenspan himself said the United States “is on the brink” of a recession on June 24, the day before the Fed announced it would be holding interest rates steady.

In early May, Treasury Secretary Henry Paulson said that the economy was on the rebound following what he called an “inflection point.” Paulson’s words suggested that the economy had indeed bottomed out. But analysts may not be able to determine correctly whether we are in a recession cycle for several 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.

Related Topic: ‘Surfing the Financial Tsunami’

The Sept. 24 entry on findingDulcinea’s blog pays homage to the upsurge in seismology- and meteorology-themed hyperbole that has roiled financial media in concert with the topsy-turvy capital markets. Market watchers are advised to take shelter from “financial hurricanes.”

Reference: Economic cycles


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