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A recession? Let's try our new checklist
People wait in line to enter the Diversity Job Fair at New York City's Affinia Hotel in June 2008.
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KAI RYSSDAL: Welcome to the inaugural Marketplace Recession Checklist. A handy list of things to look for as you try to figure out whether we're in one or not.
ITEM 1: The Housing Market
RYSSDAL: New home sales are down. Used home sales are down. Construction companies, home supply stores, they're all down. Prices are down. So, yes, as far as the housing sector is concerned, it's recession.
ITEM 2: Unemployment
RYSSDAL: There are two numbers to look at with unemployment: The rate, which we learned today has hit 5.7 percent, a four-year high. And, the number of jobs in the economy -- down 51,000 last month, the seventh-consecutive month of declines. A recession indicator? Probably.
ITEM 3: Consumer spending
RYSSDAL: This one's actually closely tied to the jobs number and the wages we get for having a job. They're not really keeping up with inflation. Although, spending was reasonably solid last quarter -- thanks mostly to the tax-rebate checks -- so let's put this one in the toss-up column.
ITEM 4: Gross domestic product
RYSSDAL: The classic definition of recession is two straight quarters of a shrinking GDP, even though noboby goes by that anymore. Still, we've only had one quarter of negative economic growth, so by that very academic measurement -- nope, not a recession.
There are a million more things we could've thrown on that list but, hey, the show only lasts half an hour.
Thought you would find the following excerpt from "The Economist" interesting. Another definition of recession could be two quarters of negative growth in GDP per capita.
Thanks,
Mike Zimmerman
The Economist
Grossly distorted picture
Mar 13th 2008
From The Economist print edition
WHICH economy has enjoyed the best economic performance over the past five years: America's or Japan's? Most people will pick America. The popular perception is that America's vibrant economy was sprinting ahead (albeit fuelled by credit and housing bubbles that have now painfully burst), whereas Japan crawled along at a snail's pace. And it is true that America's average annual real GDP growth of 2.9% was much faster than Japan's 2.1%. However, the single best gauge of economic performance is not growth in GDP, but GDP per person, which is a rough guide to average living standards. It tells a completely different story.
Once you accept that growth in GDP per head is the best way to measure economic performance, the standard definition of a recession—a decline in real GDP over some period (eg, two consecutive quarters or year on year)—also seems flawed. For example, zero GDP growth in Japan, where the population is declining, would still leave the average citizen better off. But in America, the average person would be worse off. A better definition of recession, surely, is a fall in average income per person. On this basis, America has been in recession since the fourth quarter of last year when its GDP rose by an annualised 0.6%, implying that real income per head fell by 0.4%.
