Sloan Sessions: Define recession
TEXT OF INTERVIEW
SCOTT JAGOW: It's the end of the year, so people are getting all sentimental and making their economic predictions for 2007. A popular one right now is whether a recession is coming. There are some indicators out there, namely the housing market, so I asked Newsweek's Allan Sloan his thoughts. And we never did come up with a prediction. We spent the whole time on what the heck is a recession, anyway?
ALLAN SLOAN: We all learned in school, or at least I learned in school, that a recession is two straight quarters when the gross domestic product grows less than the rate of inflation. It turns out however that that is not what a recession is. Do you know the definition of a recession?
JAGOW: Well that's the one I've always heard so, no, enlighten me please.
SLOAN: See, well, a recession is what the Business Cycle Dating Committee of the National Bureau of Economic Research decides after the fact was a recession. And I am not making this up. And I used to think the Business Cycle Dating Committee was some sort of social group but in fact it's a group of I guess now seven people who decide after the fact when a recession began or ended. And my favorite example, at the end of November of 2001 which was of course shortly after the 9/11 attacks, the committee decided that a recession had started in March of 2001. Then in July of 2003, they decided the recession had actually ended in November of 2001, which means after they declared a recession was underway it had actually begun to change.
JAGOW: Well who says that these guys and gals are the ones that decide this stuff?
SLOAN: That is what's decided. Just like you and I decide what goes on this show, the National Bureau of Economic Research is in charge of telling people officially when recessions in the United States started and when they ended. And so every time I hear people say, gee is there going to be a recession in 2007, I have this mad urge to say, why don't you come ask me in the middle of 2008 and I'll tell you if there was.
JAGOW: Well what's the feeling on Wall Street right now about whether or not we're in a recession or headed for one?
SLOAN: Well the feeling on Wall Street right now is, you'll forgive the expression, greed and joy, at least in most places because even though this may not have been a great year for the economy, it's been a fabulous year for Wall Street. And all of the high-end people on Wall Street have bonuses to die for. So they're very happy. And n any event, I don't think any of those guys, hang out with the Business Cycle Dating Committee.
JAGOW: So we'll check in with the dating committee you know, in a couple years.
SLOAN: In a few years, I'll let you know if there was a recession in 2007.
JAGOW: OK thanks a lot Allan.
SLOAN: Any time Scott.
JAGOW: Allan Sloan, the Wall Street editor for Newsweek Magazine. In Los Angeles, I'm Scott Jagow. Thanks for listening and enjoy your Monday.