There has been a lot of hand-wringing about whether or not the U.S. economy is currently in a recession. This morning’s data will, I think, lead to a near-unanimous view that the U.S. economy is in a recession. Not only was employment growth in February negative, but the B.L.S. also tells us that the previous two months were worse than originally thought. Over the past three months, non-farm payrolls fell at an annualized rate of about 0.1 percent.
As the chart below shows, in virtually every instance in which payrolls fell over a 3-month period, the NBER business cycle dating committee declared the U.S. economy to be in recession. Indeed, the only exceptions to this rule occurred over 50 years ago.
A few more thoughts:
1) The only thing to save us now: these are preliminary data, and a big upward revision could give a different view. But given the run of other recent economic data, it seems pretty darn clear that the macroeconomy is currently pretty grim.
2) What the politicos will say: given where we are in the political cycle, expect some commentators to point instead to the survey-based measure of the labor market. These data are based on a survey of workers rather than firms, and tend to yield noisier estimates. And when numbers can jump around a lot, it gives plenty of scope for political operatives to choose the specific numbers that support the particular story they are trying to tell. Even so, there’s not a lot of good news in the survey data.
3) What many macroeconomists will be pondering: does this second recent recession challenge the view that we are in the midst of a “great moderation,” in which the business cycle has been tamed?
4) The chances of a recession, according to Intrade.com, have risen to somewhere around 60 percent. But these traders are predicting the chances of two consecutive quarters of negative GDP growth, rather than the decisions of the NBER business cycle dating committee. The latter seems much more likely than the former (although both are likely).
Further commentary: Paul Krugman writes, “It has begun“; Brad DeLong warns against “a natural human tendency to overreact to what is, after all, only a marginal data point,” but goes on to say that “it is time for words like `alarm’ and `grave concern,’” a message consistent with this roundup of other commentary.
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And I must add that when numbers jump around a lot, it gives plenty of scope for reporters to choose the specific numbers that support the particular story they are trying to tell.
Good thing the Fed is focused on making things worse. As if this bumbling administration’s moves weren’t bad enough, along comes the Fed to punish earners and savers even further. Propping up prices at all costs, and rewarding borrowers. Why does America borrow instead of save? There’s one reason. With the dollar devaluing at a record pace, it doesn’t make much sense to save.
The one bright spot in this nation’s current financial disaster is that if the Democrats implode and McCain is elected, at least a Republican will be in office to take responsibility for the incredible mess they’ve made. Four years from now, maybe the country will be disgusted enough by the greed and rapacious plundering of our national resources to be ready for an FDR type.
FDR would extend our recession, don’t hope for that.
Sorry We Can Only Hope –
The more likely scenario is that a Demcrat will get elected and spend two terms fixing things (just like Bill Clinton) – only to have a republican elected in 2016 who will subsequently cut taxes on the rich so much that the cycle will begin again…
I too believe that we are already in a recession and the deniers are simply trying to protect their leader from blame (as always). However, no one seems to be discussing the “fact” that this will be the second recession of the current administration. I believe that a double dip recession combined with all of the other economic failings of this administration are ample proof that conservative economic policies do not work. I wish that the people of the US would see this and stop being brainwashed by the “tax and spend” mantra the Republicans use to create fear in voters. I would much rather have a robust economy based on realistic tax policies and control of spending than have a “cut taxes and spend even more” administration at the helm. It seems the Democrats are more capable of fiscal responsibility than are the “conservative” Republicans.
A vote for McCain is a vote for continued fiscal irresponsibility and the likelihood of an economic downfall (and for all the other failed Bush policies).
@We Can Only Hope:
Remember, when something’s bad and a Republican is in office, it’s “the incredible mess they’ve made”.
When it’s a Democrat, it’s “the vast right-wing conspiracy”.
This serious recession potential is finally becoming realized because of numerous influential factors in the economy. The mortgage crisis is only one part of the problem. Another large issue connected with the mortgage crisis and the loss of wealth for many Americans is the contraction of the new housing construction industry. The contraction of the new housing industry will hurt construction and good wages connected associated with the low skill industry.
We have gone from issuing permits in Mar. 2005 for 211.5 down to a level of 75 in term of relative permits issued. This large reduction of issued permits takes a while to become realized. Houses take six months from permit to finished construction. So I believe the job This housing bubble hurts everyone because everyone will feel less wealthy due to the glut of houses on the market which will eat into their equity. Some people will feel the pain of losing their jobs due to this contraction. And everyone will eventually feel some sort of the pain and the pull back of consumer demand may devastate the U.S. Economy.
Makes sense though. Leaders of United States and people currently in power have not really seen the failure of the markets and the ability for people to drastically change their behavior in the economy. America has become comfortable with business as usual. The memories of the Great Depression have basically ceased to exist because the majority of people who alive and conscious of the time are now no longer with us. But the world has changed and the U.S. as a country will need to find ways to address these problems.