Yesterday, the government reported that the economy’s Gross Domestic Product (GDP) grew by an annualized 0.6%.
Many in the press, along with some politicians, who have been matter-of-factly assuming that we’ve been in a recession since early this year, have a little explaining to do.
Don’t stay up waiting for the apologies.
Let me be clear: Even if the result is revised upward a bit in May or June, the economy’s current performance is nothing to celebrate. In fact, I believe there should be more emphasis on the fact that after two really good quarters in 2007 — the second quarter’s 3.8% and the third quarter’s totally-forgotten 4.9% (see BEA table here) — economic growth hasn’t even matched population growth for two consecutive quarters. When that occurs, per capita GDP, as well as per-household GDP, is going in the wrong direction: down.
But it’s one thing to be unhappy with how things are going. It’s quite another to keep shouting “recession” when GDP growth, though anemic, continues to be positive.
Though technically determining whether and when a recession actually occurred is more complicated, and is actually “determined” after-the-fact by the National Bureau of Economic Research, the everyday working definition of “recession” is very simple:
A recession is defined to be a period of two quarters of negative GDP growth.
Thus: a recession is a national or world event, by definition. And statistical aberrations or one-time events can almost never create a recession; e.g. if there were to be movement of economic activity (measured or real) around Jan 1, 2000, it could create the appearance of only one quarter of negative growth. For a recession to occur the real economy must decline.
(Aside: By that definition, there was no recession in 2000-2002. Just look here.)
The definition just cited is at About.com, which has been owned by the New York Times Company since 2005. Business reporters and columnists at the Times have been routinely ignoring the readily-available guidance at their online property for well over a year.
For example, way back on February 28, 2007, the Times‘s David Leonhardt didn’t let the fact that a recession is “a national or world event” stop him from declaring that ” For Manufacturing, a Recession Has Arrived.” He reached the conclusion that manufacturing’s 15% of the economy was in a recession based on one weak durable goods report from the Commerce Department and two slightly below 50% readings (November 2006 and January 2007) in the Manufacturing Index (full index history is here) published by the Institute for Supply Management (ISM). An ISM Index reading above 50% indicates expansion, while below 50% means contraction.
Although he later allowed that we weren’t in a “real recession,” Leonhardt’s invocation of “the R-word” to describe an individual economic sector was inexcusable. What’s more, the manufacturing sector wasn’t even in the neighborhood of distress, and Leonhardt should have known it. The very first day after his article appeared, ISM’s February 2007 Manufacturing Index came in showing expansion, and did so for the next eight months. The Times has ignored requests that they correct Leonhardt’s error.
It isn’t just manufacturing that has been described as in recession. This Times search on “housing recession” shows that the Old Gray Lady has used that term 25 times since October 2006. Housing is in a very bad slump, but, by definition, it cannot be in a recession.
More recently, presumptive announcements that we’re in a recession — not heading for one, but actually IN one, have come from politicians as high up in the food chain as John McCain and Bill Clinton (or perhaps the reporter covering him, who wrote, “He began the night by discussing the current recession ….”).
If politicians are throwing around the R-word, it’s because the press has been, recklessly and repeatedly. A Google News Search done early Thursday morning covering the past 30 days had 132 hits on just one all too commonly used phrase: “the current recession.”
It’s no longer a question of recession or not. Now it’s how deep and how long.
Reacting to yesterday’s positive GDP report, Aversa acted as if she never wrote those words, didn’t bother to correctly define a recession, and still got in her digs:
The statistic did not meet what economists consider the classic definition of a recession, which is a retraction of the economy. This means that although the economy is stuck in a rut, it is still managing to grow, even if modestly.
Give Old Media reporters and nay-saying politicians a few days, tops, and they’ll be telling us we’re in a recession all over again. Talking down the economy appears to be their stock in trade these days. Didn’t somebody rip into Dick Cheney for doing that very thing in late 2000?
Tom Blumer owns a training and development company based in Mason, Ohio, outside of Cincinnati. He presents personal finance-related workshops and speeches at companies, and runs BizzyBlog.com.