Recession? Or Not?
Question: I write a personal finance blog (pfblueprint.com) and one of the things that my readers have been mentioning a LOT has been the true state of the economy. The official figures indicate that we aren't technically in a recession but all the headlines scream recession. There are headlines every day about banks are failing, 1 in 171 homes is in foreclosure, the deficit next year will be half a trilling bucks, oh, and the sky is falling. So what's the deal? Thanks, Thanks! Jim in Maryland
Answer: I am in the camp that believes we are in a recession. Yes, government statisticians recently reported that the economy is expanding at a 1.9% average annual rate. And it takes the National Bureau of Economic Research--the official arbiter of when and if the U.S. economy is in recession--between 6 month to 18 months after a downturn begins to label it as a recession.
Still, the job market is weak, and getting worse. Layoffs are hitting more industries. Home prices keep spiraling lower, and we haven't seen bottom yet. The credit turmoil in the financial system is spreading, most recently reaching the credit card market. Consumers are strapped for cash, with higher energy and food prices sapping budgets. Exports are one of the few bright spots in the economy.
What's more, official history is being revised downward. It's intriguing to note that when the government revises previously published statistics the figures are usually worse than initially reported. For example, the fourth quarter of last year was recently revised down to negative growth: -0.2% from the previous 0.6%. Mike Mandel, chief economist at Business Week, has been making a strong case over at his blog that the consumer spending figures are too high.
It feels like a recession. It looks like a recession. And eventually I think it will be labeled a recession.