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Your Take: Are We In A Recession?

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Gray's Papaya: Recession Special!It used to be that the measure of a recession was two consecutive quarters of negative GDP, something that we haven’t done yet. However, with all the bad financial news (enormous national deficit next year, 1 in 171 homes being foreclosed, record unemployment, stock market woes, financial companies taking massive writedowns, domestic car manufacturers tanking, etc), it’s sure feels like a recession despite the official measures telling us otherwise.

(As an aside, the two consecutive quarters rule is really a trailing indicator. You’re in a recession when the GDP is contracting but you don’t label it a recession until after two quarters, so you live it before you label it. Makes the term kind of useless, doesn’t it?)

I’m curious to know whether you think we’re in a recession. I posed the question to Chris Farrell, Marketplace Money’s personal finance guru, and he said:

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.

(Photo: bobjagendorf)

{ 22 comments, please add your thoughts now! }

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22 Responses to “Your Take: Are We In A Recession?”

  1. ChristianPF says:

    Yep, I think the writing is on the wall with this one… If not, it is going to be a self-fulfilling prophecy since all the media and everyone else is talking about it… But, the bright side is that historically recessions only last a year or two and they are almost always followed by a strong bull market… so at least we have that to look forward to…

  2. Jeremy says:

    I think right now, we’re looking at regional areas of recession. Some states and areas have been experiencing tough times for a few years, while others are plugging away just fine despite everything that’s going on. Of course, this could be just a sign that a more national recession is looming, but I know there are plenty of people and areas that aren’t feeling the pain much, or at all.

    If you take the example of where I live, the traits of a recession are difficult to find. Our county, and a few immediately surrounding ours have actually seen home prices increase in the past year while every other county in the state saw steep declines. Food prices haven’t increased much at all, but then again, we’re right in the heart of farm country, so dairy, vegetables, poultry, pork, and a lot of grains are all grown within a few hundred miles and don’t require a lot of high-priced gas to transport them to the store. We can still get a gallon of milk for about $2.80 and a dozen eggs for a little over a dollar.

    Aside from the higher gas prices, there aren’t many terrible things happening around here. Not too far away, a plant that made RVs had some layoffs, but other than that, you can look through the classifieds and see that there are a ton of job opportunities, and solid career type jobs too, not just part-time grunt work. There are also new subdivisions still being built, and major construction in some of the commercial areas building new stores and restaurants.

    But at the same time, I can look no further than 150 miles to where my parents live, and they are in borderline depression, not just a recession. Massive job cuts, stores and restaurants literally closing shop, and houses on the market for over a year and still not being sold after slashing prices by 40% or more.

    So, I think it largely depends on where you live and what industry you work in. As a whole, I think a lot more people are feeling the effects than those who aren’t, but every recession is different and affect different industries and different types of people.

  3. Hawkmoon Nine says:

    It probably feels more like a recession to people because we have better communication than we’ve ever had. The 24/7 media has to say something and “we’re having a slowdown, but not a recession” isn’t going to sell as much as “THE SKY IS FALLING!!!!!!” We might have gone through a small recession last year or will have one coming up, but I don’t think we’re in one right now.

  4. I think we absolutely are in a recession. Regardless of what the statistics say, people are losing jobs, businesses are closing at an alarming rate and consumers are tightening up their purses. The real indicator is how much people have to spend because when the money is there they spend it and when it’s not, they don’t.
    Besides, I feel that a recession is about the little guy, not GDP.

  5. Matt says:

    Even if we’re not officially in a recession I beleive that we’ve been in one for a little while now. A lot of the key indicators are pointing down and they have been for a while. A national average can be skewed by a couple regions that happen to be doing well. Overall the economy seems to be faltering with increased prices and people loosing their homes. Those people that aren’t in dire straits are still spending less and concerned about the economy. I think all of the factors combined, for me, indicate there’s a recession (not only in the US but in many parts of the world)

  6. Rick Morley says:

    Also, remember this, the official figures for GDP growth are inflation-adjusted. So when they report 1.9% growth, the actual growth was higher, minus some amount for inflation, to get 1.9%. However, many people feel the government intentionally underreports inflation. If the real inflation amount is just 1.9 percentage points above the reported inflation figures, then that means we have actually experienced negative GDP growth.

    It is for this reason that I do feel we are in fact in a recession.

  7. James says:

    Hmmm…finding a definition for “recession” is kind of like nailing Jell-O to a wall. There are obviously all sorts of negative indicators out there, but I agree with Hawkmoon (the media makes it seem worse than it is) and Jeremy (there are plenty of places where you can find positive signs). I guess what’s important is–Is it a recession for you? That’s what ultimately matters.

  8. My comment/question is: If we were not in a recession last week but every pundit agrees this week that we are, will your financial behavior be any different? if so, why? I suppose my point is that “recession” is just a label that provokes emotional reactions among consumers and investors who should instead be focused on their own jobs, finances and portfolios.

  9. jim says:

    Rick – That’s an excellent point and made more poignant when you couple it with Chris Farrell’s concern about the government revising past statistics down. It’s a bit like they’re just playing with numbers so it’s not a ‘recession’ by the statistic definition.

    ToughMoneyLove – I think that if I feel like we’re in a recession, based not on pundits but on my gut feeling, I’d change my behavior. If standard growth rates is the norm and a recession is a pull back from that, then I’d be spending less and saving more for that rainy day. Whether that changes my behavior in one day, that’s probably not going to happen.

  10. pt says:

    yep. We’re in a recession and it’s going to be a long nasty one. Maybe the worst since the early 80′s recession…. maybe even worse than that one.

    There’s just too much debt in the system right now. And lots of it is going bad (note all the huge losses this week at AIG, Freddie and Fanny, just to name a few). For every dollar that the banks lose it means 8 to 10 dollars they won’t be lending out – that’s why we’re in a credit contraction that’s been going on for the better part of a year. And that contraction in credit causes a contraction of the economy.

    So, while oil is going down, it’s still over $100/barrel and that’s still going to be a drag on the economy.

    At this point we’ve got the US auto industry on the ropes, the US financial industry on the ropes, home building and real estate is on the ropes as are the airlines. That’s a big chunk of the US economy right there which means this will be much bigger than the tech-driven downturn earlier this decade. Keep saving your money to be prepared for the tough year or two ahead.

  11. Jeremy says:

    In many cases, I see this current “recession” we’re supposedly in as a regression back to common sense. How many stories in the media have we heard or read about people talking about the “sacrifices” they have to make because of the economy?

    You always hear stories about how people are being more careful about what they buy, using coupons to save money, having to sell one of their 3 brand new SUVs to keep up with gas prices, eating out less, and taking a brown bag to lunch a few days a week.

    I’m sorry, but if people think that doing things like these are a sacrifice and that times are tough, they are clueless. All this means is that people have become accustomed of living beyond their means, or at least being careless with spending, and when they can’t have all of these luxuries, it comes off as suffering.

    And this extends beyond inflation, food, gas, etc. A recession isn’t the reason someone’s ARM reset. A recession isn’t the reason someone put 0 down on a no-document loan and find they have no or negative equity on their home. Sure, these things don’t help the situation, but they are not a result of a weak economy, they are the cause. Too many people blame a recession for losing their house, when in fact, they probably were going to anyway if they were in a position where it was more than they could afford. It just caught up to them sooner.

    This isn’t to diminish the fact that rising prices and job loss in many areas don’t have a significant impact on people, but I have to agree Hawkmoon above and the media plays a big role in creating a self-fulfilling prophecy. I guess if the definition of a recession is people needing to use common sense and be careful with spending and make smart housing decisions, then we’re certainly in a recession or even depression.

  12. Ryan says:

    I agree with Jeremy’s last post and with ToughMoneyLove. Does it really matter what our current situation is called? Good or bad, personal finance and more importantly how we have designed our lifestyle and its ability to afford us to be content, is where the real value should be placed. Some people forget that they control their own lives and jump to others (the government, the economy, the president) to place blame. We all experience our own recessions and periods of growth at different times. —Sorry a little philosophical, its the first thing that came to my head after reading.

  13. jim says:

    Jeremy – Very true, it’s definitely going to back to common sense and the basics of sound money management.

    Ryan – Excellent point, we definitely have our own little economics going on but it’s all within the greater environment and it’s important for us to be aware of it. Sure it’s not important whether the label is used but by asking, you spur on discussions like the one we’re having now.

  14. Hey now, i used to eat at Gray’s Papaya all the time when i was living in NYC! How can it be cheaper than it already was? haha….is it now 50cents/dog instead of $1.00?

  15. jim says:

    That place was awesome, I loved going there after a night out. :)

  16. pt says:

    Jeremy,

    I largely agree with your last comment, however, this recession isn’t a media-created event. It was created by over-extending credit to people who shouldn’t have gotten it. It was created by speculation in houses – the easy credit brought demand forward (in the old days you’d save up that 20% down and that would take a while which meant that the supply of qualified buyers was kept down and more steady).

    You’re right. The “sacrifices” at this point aren’t that significant, but this is only the start of the belt-tightening.

  17. Jeremy says:

    Right, I don’t think the media created it, but they are certainly feeding it with their so-called reporting. And when you look at it, most of the people who are getting hurt are those who helped cause it to begin with. Yes, I know there are some unwanted side affects and some innocent people are getting caught in the crossfire, and I’m sure this will only get worse in the coming months.

    But the fact remains, this country has been in need of a wake up call for years. More people will certainly have to tighten their belts, more people will lose their homes, and more businesses are likely to close, but it’s only because people created the very bubble that is now hurting them. If this is what it takes to realize the money isn’t free, and the American dream doesn’t mean you’re entitled to live an upper class lifestyle on a middle class income, then that’s the breaks.

    I’m not saying it isn’t going to suck and take some honest hard working people with them, but as a whole, this is what we need to have happen if we ever want to find a way back to being a successful and thriving economy.

  18. pt says:

    Jeremy,

    True dat.

  19. Lord says:

    Yes, we are probably in recession; talk of recession generally follows onset of one rather than precedes it. A recession isn’t that relevant to individuals; what is important to them is not gdp but gdp per capita and that has been negative for sometime, just as what is also important is not jobs created or lost but created or lost relative to workforce growth, and not inflation but real wages. We focus on the wrong measures and are then surprised when people don’t believe in them.

  20. Kevin says:

    I don’t think there’s any doubt whatsoever that we’re in a recession. Relative to other currencies like the Euro, the Dollar is extremely weak. Further, I think due to gas prices (which are going to continue to go up), we’re going to be in really bad shape for at least a few more years. In fact, I think it’ll become a “depression”.

    That’s just my take, but I don’t think most people are really comprehending high gas prices for what they are: not liable to go back down any time in the near future.

    Cool post though.

  21. Scott says:

    Are we in a Recession, depression, stagfalation, or whatever the media names as this weeks “ation”. I do not care.

    Jobs lost are incresing, but we still have a small number of unemployed compared to most times in history. Granted it may not be a job you want, but it is still a job.

    Companies are closing…and they will continue to close and open and close and open again, cycle of life. that what you get in a global economy dude.

    All the numbers get played with, GDP, CPI(not counting food or fuel, are you serious?). What is goiong to sell the most papers, or get your guy elected? The news media wants Barack, therefore the economy must be shown in its most horrible situation, whether it is or not, so Barack can ride in as a Savior and save us all from ourselves.

    Merrill set the pivot point for the CMO, Auction rate value, all other will use this as well and thus we can move on.

    As for the mortgage market, when you allow fiat money to be the sole source of value, and allow banks to stop being banks then why are we shocked this happens. It will happen again as soon as its profitable.

    If want this to stop, then when the feds levy a fine against a big wall street firm for doing a naughty thing, fine them 6 months profit instead of 6 days.

    As for oil and energy, gasoline is still the best and cheapest souce of BTU. Do not force us to change until a better source is found first. Drill now, drill here! I could care less about the mating rituals for caribu if it means 1$ a gallon gasoline, lwet the caribo die.

    Global warming….Hogwash. When you can tell me the weather 5 days from now with 100% accuracy then I can begin to believe you about what the weather will be 50 years from now. Quit telling me you know what the weather will be 50 years from now when you cant tell me if its going to rain in 5 days. FYI- stations used to determine global warmng are 50-70 years old. When first built they were in the country with no people. Now, one station is 60 feet from 10 AC units. Gee, wonder why the temp is rising. Try using satalite data, there you see a .6 deg centigrade decline worldwide the past 7 years on average.

    just worry about yourself and your family, get a will, do what you can for those things that make you passionate and stop telling me we are in a recession, I dont care.

  22. When we have 94-95% employment we aren’t “in a recession.” Like you said, we’re just getting back to common sense. People aren’t used to having to act responsibly with credit and so they label it a recession. Businesses have been opening and closing for decades. You and I are old enough to remember the “S&L crisis.” Did everything collapse? No. It just shook out the weak. We need business cycles to do that every now and then.


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