AP, Bloomberg, and Some Economists Defining Recession Upward
The business press's recession obsession continues:
- A couple of weeks ago, in the wake of the initial first-quarter GDP growth reading of 0.6%, Rex Nutting at MarketWatch.com entertained us with the notion that an economy can be in a recession even while there is real, if anemic, economic growth.
- Today, Jeannine Aversa of the Associated Press, with the help of a number of economists, told us that we can have a recession if growth is better than anemic -- even above 1.5%.
- Steven Matthews of Bloomberg went even further, as he assumed that we're in one now ("U.S. Recession to End by September, Business Economists Say").
This is getting ridiculous.
Let's start with the doleful dramatics of Aversa's report:
Forecasters see weak economy, higher unemployment
First the good news: The worst of the painful housing slump and the credit crunch might come to an end this year. Now the bad: The economy will weaken further and unemployment will rise.
That's the latest outlook from forecasters in a survey to be released Monday by the National Association for Business Economics, also known by its acronym NABE. It will take time for any rays of light to poke through the economic clouds, though.
A growing number of economists believe the country is on the brink of a recession or in one already, dragged down by all the problems in housing, credit and financial markets. Now 56 percent of the economists think the economy has started or will enter a recession this year. That's up from 45 percent in a survey in February. If there is a recession, it probably will be short and shallow, economists said.
Forecasters downgraded their projections for economic growth. They now predict the economy, which grew by 2.2 percent last year, will slow to 1.4 percent this year. That's lower than the 1.8 percent growth projected in February. If the new figure proves correct, it would mark the weakest growth since the last recession in 2001.
Follow me closely on this:
- Let’s say first quarter 2008 growth stays at the 0.6% reported last month (a group willing to be cited by name, as Wall Street Journal reporters Kelly Evans and Justin Lahart noted last week, believes that it will be revised upward to 1.0%).
- Growth for the whole year, as just noted, is expected to be 1.4%.
- That means, doing the math, that growth during the year’s remaining three quarters is forecast to be just shy of 1.67%.
So now we can have a recession when growth is over 1.5%? Nobody is saying that 1.5% is desirable, or even acceptable, but calling it recessionary is nothing but wishful thinking by AP and NABE economists, who clearly have been reading too many AP and Bloomberg reports.
Speaking of Bloomberg, here is reporter Matthews preemptively assuming we're in a recession:
U.S. Recession to End by September, Business Economists Say
The U.S. economy will probably exit from a recession by the end of the next quarter as credit markets improve after a year of turmoil, according to a survey by the National Association for Business Economics.
The worst of the U.S. credit crunch and housing slump is about over, and growth will pick up to 2.1 percent in the second half, according to the poll of 52 professional forecasters taken April 17 to May 1.
If the second half comes in at an annualized 2.1%, and the first quarter's gorwth stays at 0.6%, second-quarter growth would come in at a still-positive 0.8% to achieve the 1.4% growth for the full year Aversa cited in her AP report.
Now I know full well that while the everyday working definition of recession is two quarters in a row of negative GDP growth, the "technical" definition of a when a recession occurs, for better or worse (I think worse), is "whenever the National Bureau of Economic Research (NBER) says it occurs," and that the NBER's determination occurs well after the fact.
NBER's squishy recession definition 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.
NBER further tells us that:
There is no fixed rule about what weights are assigned to the various indicators, or about what other measures contribute information to the process.
In other words, nobody, including NBER, but especially Matthews, knows how they're going to determine whether and when a recession occurred.
I would suggest that a precondition for even calling a meeting of NBER's recession-determining committee should be at least one quarter of negative growth. That hasn't happened yet, it hopefully won't, and the forecasters cited don't think it will. The NBER will risk its reputation as non-partisan if it tries to sell us on the idea that a recession occurred when real growth never stopped.
Meanwhile, the business press may need to define its own definition of recession further upward, especially if the same party continues to control the White House. According to Aversa, the forecasters are predicting that 2009 growth will come in at 2.3%.
Presented in much shorter form at the end of this entry at BizzyBlog.com.