Press and Politicians Prematurely Crying ‘Recession’
Our press and our leaders have some explaining to do. The Gross Domestic Product is up — not by much, but enough to make it clear that the R-word is being used without justification.
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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.”
The Associated Press’ Jeannine Aversa provided perhaps the most egregious preemptive recession declaration on April 5, when, in the wake of March’s weak Employment Situation Report, she wrote:
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.
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18 Comments
Kyle Stone:I was waiting for a well-spoken articulation of this point. it just shows how out of control media hype really is.
May 1, 2008 - 11:44 am GM Roper:My blogging partner Woody posted on this very thing just the other day. I wonder why the public doesn’t stand up and call these naysayers liars. Oh, wait, the MSM is the idea machine for the public. Sigh!!!
May 1, 2008 - 12:01 pm Smokey:An astonishing miracle will occur if a DemocRat is elected in November: overnight, the economy will begin rapidly improving. If, by chance, there’s a glitch anywhere, naturally it will be all the fault of the eee-e-e-vil Bush.
Do I have that about right?
May 1, 2008 - 12:53 pm JOHN:They’ve been trashing the economy for over six years. Spreading fear and now the chickens have come home to roost (I think I heard that somewhere).
May 1, 2008 - 1:41 pm GM Roper:Smokey, yep, just about right!
May 1, 2008 - 1:42 pm Ten:From Mish (click Ten, above):
“The structural problems created by a 25 year credit binge simply are not going to be cured by a two quarter recession that Paulson and other economic cheerleaders will not even admit has started. Peter Bernstein a financial manager, consultant and financial historian agrees. Inquiring minds may wish to take a look at a Wall Street Journal Interview with Peter Bernstein.
“Very few are considering demographics, a change in attitudes by consumers towards spending, a change in attitudes of banks to lend, and the ability of capital impaired banks to lend even if they want to.
“I find it amusing that cheerleaders are willing to see the end of a recession while not even admitting we are in one.”
The most interesting irony is that by chalking all economic talk up to partisan politics, the ostensibly conservative Republicans, of whom I would like to consider myself one, are simply indulging in fiscal denial.
Sorry Tom, whistling past bank failures, granting the Fed vastly increased power over the private sector, record-level debtor nation status, a simply spectacular trade deficit, a nine trillion dollar debt, skyrocketing oil, commodities, gold, and even food prices, an exponential paper money supply, absolutely plunging housing numbers, and what is in everything but official name a socialized, Keynesian fiscal structure, does not constitute a service to conservative, sound monetary policy.
May 1, 2008 - 2:14 pm Jay:Folks, I live in a city that is growing. We have houses on the market for months and many are turned into rentals. We have empty office building. The sales tax receipts are going down as our our property values. Yet we are adding lot of tech jobs that pay well. The Feds are lying about the numbers and anyway the gov statistics are always fuzzy.
May 1, 2008 - 2:21 pm Henry:Inflation is around 9% if we include food and energy which are excluded by the BLS and Fed as non core items. Personal, business and government debt is very high. I am a strong fiscal conservative but I know that governments lie in their favor PLUS the speculative leveraged financial system is too complex for all but a few business-economic journalists to try to explain to lay folks.
Unfortunately, there is truly a lot of disinformation in the media. For example, fro the U.S Department of Commerce “While gross domestic product (GDP) is the broadest measure of economic activity, the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation.” And from the National Bureau of Economic Research (NBER) “A recession 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. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.” As to NBER “In 1961, the U.S. Department of Commerce’s Bureau of Economic Analysis informed us that it planned to publish our chronology of business cycle turning points in its monthly publication about the business cycle. Doing so served to demonstrate that the government considered our dates “official.”
From John Crudele at The New York Post “it was government spending and inventory building by corporations that created most of the first-quarter gain.”
Furthermore ” In coming up with the 0.6 percent annual growth figure, the Commerce Department decided that inflation was just 2.6 percent.
….the 2.6 percent figure for price increases used for the GDP calculation was nowhere near the 4 percent inflation calculated by other government agencies.
If inflation, for instance, had been 4 percent then the nation’s economy would have contracted by an 0.8 percent annualized rate.
And not only that, if inflation was being honestly reported the economy would have contracted in the fourth quarter of 2007 as well.”
There are liars, damn liars, and statistics.
In other words, there would have been two straight quarterly declines in GDP and the debate over whether or not we are in a recession would be settled. “
May 1, 2008 - 3:08 pm Henry:Unfortunately, there is truly a lot of disinformation in the media. For example, fro the U.S Department of Commerce “While gross domestic product (GDP) is the broadest measure of economic activity, the often-cited identification of a recession with two consecutive quarters of negative GDP growth is not an official designation.” And from the National Bureau of Economic Research (NBER) “A recession 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. A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough.” As to NBER “In 1961, the U.S. Department of Commerce’s Bureau of Economic Analysis informed us that it planned to publish our chronology of business cycle turning points in its monthly publication about the business cycle. Doing so served to demonstrate that the government considered our dates “official.”
From John Crudele at The New York Post “it was government spending and inventory building by corporations that created most of the first-quarter gain.”
Furthermore ” In coming up with the 0.6 percent annual growth figure, the Commerce Department decided that inflation was just 2.6 percent.
….the 2.6 percent figure for price increases used for the GDP calculation was nowhere near the 4 percent inflation calculated by other government agencies.
If inflation, for instance, had been 4 percent then the nation’s economy would have contracted by an 0.8 percent annualized rate.
And not only that, if inflation was being honestly reported the economy would have contracted in the fourth quarter of 2007 as well.
In other words, there would have been two straight quarterly declines in GDP and the debate over whether or not we are in a recession would be settled.”
There are liars, damn liars, and statistics.
May 1, 2008 - 3:13 pm Akatsukami:“Recession”, like “global warming”, “fascism”, and other terms that once had meaning, has been denatured by progressives who randomly attach it to anything that they oppose.
May 1, 2008 - 5:09 pm P. Ami:I’m in the third quarter of my business being open. We owe a low 6-figure dollar amount to a bank through an SBC loan and a few more tens of thousands through an equity line of credit (locked in at a pretty low rate) taken out on a house. So, I’ve got lots to worry about in terms of my business, in general, and in having come into the market at a time that seems precarious. The fact is that every retail business in my area feels a squeeze as products are getting more expensive and there are less people out buying. If inflation goes up then so does my rent. I don’t have any other years to compare this one to but everyone seems to think that business is unusually slow this last half year or so. Whatever the technical name for it, the economy has slowed.
May 1, 2008 - 11:29 pm Joe C.:“The Democrat Effect” in full force. Once the Dems took over Congress, they’ve threatened the economy with all kinds of stupidity, and businesses responded by slowing down any growth until after the election in case the Dems win. Why expand if you are just going to be punished.
May 2, 2008 - 3:01 am WR Jonas:The Democratic Congress that promised a change from those evil Republicans has delivered nothing but misery and destruction. No improvement in our pathetic oil production and no improvement in our overburdened power industry. Just more attacks on the very industries we need to spur growth and expand the economy. The Congress dwaddles away its time with attacks on our military, our private employers and sports figures. It offers huge subsidies to food producers to drive the supply side toward destruction. It whines about the environment and thwarts every effort to find new energy sources .
May 2, 2008 - 6:10 am Orlando:In other words this Congress is a total failure . And not one word of their hopeless floundering is ever covered seriously by the MSM. All they do is blame George Bush.
For this we are supposed to reward this pack of liars a Democratic President and a veto proof majority in the House and Senate.
I would rather see the economy and our nation in total ruin before rewarding this pack of jackals anything.
Come to think of it, I believe that is what we will see.
Recession is a political term used by MSM to describe the smallest economic blip that can possibly occur during a Republican adminstration. The term has NEVER been used when a Democrat is in office by the MSM.
May 2, 2008 - 9:48 am PR:During 2000, the country had entered a true economic slowdown, when then candidate Bush referred to it he was skewered mercillessly by the MSM, Bush was right, of course.
During 1980 the country was in the midst of a nearly 3% contraction. It wasn’t mentioned at all in the press, why, because Jimmy Carter was in office. The public knew better and threw him out of office.
On and on we can go about this, dating all the way back to the depression, when FDR was reelected three times following the same failed economic policies as Hoover did and scarcely helping the American economy at all.
WR Jonas
May 2, 2008 - 12:53 pmThe only thing you forgot is the countless hearings Democrats hold for pretty photo ops, other than that you hit the nail on the head.