FR Exclusive: It depends on the definition of "Recession"-Why We Aren't in One; Who's Lying about it

National Bureau of Economic Research and investorwords.com ^ | Though March 31, 2003 | National Bureau of Economic Research

[litany_of_lies]

The truth is that the recession began on January 1, 2001 and ended September 30, 2001, PERIOD.

Let's face it: The NBER won't let go of the recession in the face of contrary evidence. So what did they do? They redefined it. Sorry folks, no sale. No one is saying the economy is on fire, but it has be out of recession now for nearly two years.

Get over it and wake up, NBER.

And if anyone tries to tell you about the continuing recession, ask them "How we can be in a recession if the economy has been growing for the last six quarters (soon to be seven)?"

[Willie Green]

Well, here are the facts:

Gross Domestic Product (GDP), the measure of the USA's output of goods and services, is calculated by the Commerce Department's Bureau of Economic Analysis using the following items:

• Personal consumption expenditures: Personal consumption expenditures are far and away the largest and tends to be the most stable of the four expenditures, averaging about 65-70% of gross domestic product.
• Gross private domestic investment: Expenditures on capital goods to be used for productive activities in the domestic economy that are undertaken by the business sector during a given time period. Gross private domestic investment tends to be the least stable of the four expenditures, averaging between 12-18% of gross domestic product.
• NET EXPORTS OF GOODS AND SERVICES Net exports of goods and services is the smallest of the four expenditures, averaging around 2% of gross domestic product. Unlike the other expenditures, net exports of goods and services can be either positive or negative. They are positive when exports are greater than imports (Trade Surplus) and negative when exports are less than imports (Trade Deficit). In recent years, net exports of goods and services have been negative.
• Government consumption expenditures and gross investment measures government purchases undertaken by the government sector. Government consumption expenditures and gross investment averages between 15-20% of gross domestic product. This percentage tends to be ebb and flow a little with the political winds.

Consistant with this definition of GDP, would you care to enlighten us as to how much of the "growth" is attributable to unfettered Government deficit spending?

[Texas Gal]

"And if anyone tries to tell you about the continuing recession"...

I'll hand them my resume and try to get them to hire me (it's more fun to work for an optimist, but if the pessimist will pay me, I'm there).

[snopercod]

"How we can be in a recession if the economy has been growing for the last six quarters (soon to be seven)?"

I have lived in good economic times, and bad economic times. In my 40 years in the job market, this is the worst I've ever seen.

Whatever figures you're posting do not accurately reflect the reality of the situation.

I mentioned to some friends of mine the other day that 30 years ago, when I was just out of the Army and really didn't know much, I was making $14 per hour as an electronic technician. Jobs were plentiful. Health insurance covered everything at the doctor of my choosing with no deductible. My rent was $150 per month, beer was $1.32 a six-pack for Coors, and new cars could be had for $2000. I had plenty of spending money left over each payday.

Here I am 30 years later with a BS in engineering, what some would consider wide experience building nuclear plants and as a systems engineer on the Shuttle program, as a licensed building contractor, and much more...yet I am still earning the same as I was 30 years ago. When I find work, that is.

In the meantime, similar cars now cost $20,000-$30,000, similar beer costs $6+ per six-pack, and rent is over $1,000 per month here in this low-wage area, and much higher in the cities.

Please don't tell me how great things are. It's just not true.

Thank you for listening...

[litany_of_lies]

I don't like excessive government spending, but the answer to your question doesn't matter. We're not in a recession as a recession has been defined for at least the past 50 years, until the NBER tried to change the definition.

If I remember my Econ 101 properly, Government spending, especially excessive spending, has traditionally had a smaller multiplier effect than private spending, meaning that it spreads its way through fewer hands than private spending. Therefore, I think it's safe to say that personal consumption has drive the real GDP growth we have experienced during the past 6 quarters.

[litany_of_lies]

I didn't say things are great. I just am saying we are NOT in a recession as it has been defined for the past 50+ years.

The lack of job creation is very troubling, and I don't deny that for a minute. What we forget is that job growth is usually the last thing that happens when there is a recovery.

I also believe that the slow growth in total number of people employed is at least partially due to what I call the "Dr. Laura effect." Rush referred to Census Bureau data yesterday that showed that more women are staying at home with their kids and exiting the workforce. I would go so far as to say that we're in a slow "Dr. Laura" recovery because of the moms that have withdrawn. I'm not saying that moms (or a parent) shouln't stay at home with younger kids, but you have to recognize that it does have potential negative short-term consequences.

[Willie Green]

I don't like excessive government spending, but the answer to your question doesn't matter...
Therefore, I think it's safe to say that personal consumption has drive the real GDP growth we have experienced during the past 6 quarters.

"Doesn't MATTER" ???

Gut instinct tells me that there's likely been an increase in personal consumption, so I won't argue that point.

But doesn't it bother you that Government expenditures may be ramping up uncontrolled while the private domestic investment component could be knocked flat on it's kiester???

Good grief.

[litany_of_lies]

I said it doesn't matter and isn't relevant to the answer to the question "are we in a recession or not?"

Of course excessive government spending matters to the long-term well-being of the nation (for a lot of reasons including the potential crowding-out of private investment you noted), and the total lack of control is the second-biggest black mark on the Bush Administration during its first 2-1/2 years. The biggest is the total dereliction of duty on the immigration issue.

[moneyrunner]

Excellent report. And you are to be congratulated for keeping the focus on the issue instead of allowing the discussion to get sidetracked.

I'll forgive the spelling error in your original post.

[q_an_a]

I don't see how a million women staying at home, not working in jobs that others are doing, is the cause of anything. The workers work, the moms take care of their families and the husbands pay for the cost of the family. How do stay at home moms cause slow growth? Is it because there are not more dollars flowing into fast food and day care?

[litany_of_lies]

How do stay at home moms cause slow growth? Is it because there are not more dollars flowing into fast food and day care?

Essentially yes (though again I'm not saying moms staying at home is a bad thing-it's a GOOD thing).

Take this to the extreme: if half the workforce were women and all of them quit to stay at home at the same time, the value of goods and services subsequently produced in the economy (which is what Gross Domestic Product is) would drop by half (unless the men somehow got twice as productive because the women weren't distracting them-yuk, yuk).

[litany_of_lies]

In the interest of piling on, I should point out that the entire recession occurred during the last government fiscal year (9/30/2001) that had a Clinton Administration budget (passed before he left office). The first Bush Administration budget began on 10/1/2001.

[litany_of_lies]

I'll "concede" your point, and also note that I needed an "s" on headquarters.

[Edit35]

Snopercod:

My son recently graduated from Penn State (engineering degree) and immediately began looking for a permanent job to upgrade from the intern job he got along the way.

He got rather enviable job almost immediately with a top Fortune 500 company, 60k to start, with a signing bonus and other goodies. AFter he accepted, he received similar offers from several other companies.

I must add that I love my son, but he certainly did not graduate the top in his class, and he is certainly not the most indespensible person in his field.

Furthermore, in my own field of journalism (newspaper reporter), they are constantly hiring people in nearly every department.

I'm not sure what region in which you live, but something is wrong with your picture. Sure, the economy has been anemic for three years, but it certainly is not the worst job market in 40 years, or whatever number to which you ascribe in your post.

So please, let's dispense with the "worst economy in 40 years" baloney.

DS
Pennsylvania.

[jammer]

You make good points. Why let 'em change definitions (on yet another issue) in mid-stream?

Having said that, maybe "recession" is not an adequate description. We DO have a problem. A big problem. Like Willie Green, I think a lot of it has to do with government sucking investment money from producers.

Sorry to get off your main point.

[jammer]

In my 40 years in the job market, this is the worst I've ever seen.

You and I must not have lived through the same economy beginning with Gerald Ford and continuing through Carter until Reagan's tax cuts took effect. THAT was a bad economy.

[Tauzero]

"Whatever figures you're posting do not accurately reflect the reality of the situation."

Yep, definitely a recession in employment.

I guess if we had a productivity miracle that produced 1% GDP growth and 90% unemployment, that'd be o.k. with the polyannas.

[Tauzero]

"How do stay at home moms cause slow growth?"

Yeah. Why not say "slow growth causes more moms to stay at home"?

[litany_of_lies]

Got a callback from an NBER person today. In her VoiceMail, she basically said that NBER has had the unofficial role of calling the beginning and end of downturns since the early 1960s, and the two consecutive quarters of negative GDP growth, although commonly assumed to be the defintion of a recession, really isn't, even if it's taught that way in Econ textbooks.

If she is correct (which I don't concede), I still say the NBER is holding out in the face of too much good news. Yes, job growth hasn't picked up much, but it HAS picked up (about 1 million more people have jobs now vs. a year ago), so none of the factors that would drive the definition of a recession are in place today. I STILL say they're holding on to their "we're not sure" position for no good reason, except partisan reluctance to admit to any good economic news during a GOP administration.

I'll also speculate that the extensions of unemployment benefits have made the unemployment numbers sticky, meaning they aren't going down because a large percentage of the unemployed are either not looking for work or are being too selective (please don't take personally if that doesn't describe you).

[snopercod]

My problem is that I'm living in the wrong area of the country, trained in disciplines no longer in demand, and over 50.

So I'm branching out into architecture. I have been getting some work designing houses for a local architect using AutoCad. That, and my wife's job are paying the bills, barely.

Let me tell you guys (gals?) what it was like in the early 80's as a contract engineer in the electric power industry. I would get cold calls from prospective employers. Magazines and trade papers had page after page of help-wanted ads. Several times I was hired on the spot after a 5 minute telephone phone interview. The last job I got that way paid $40 per hour (in 1983). We would get travel pay, and per diem. No longer.

These days, a similar position (Power Plant Startup Engineer) pays less than $10 per hour. Think I'm kidding? Check out GE Power Systems Division's listings. "BSEE, 5 years of specific experience, willing to relocate, $20,000 per annum to start). Yeah, right...

America has entered the post-industrial era, where people who actually know how to design and build physical things are no longer needed. Symbol manipulators are the only people in demand these days.