Saturday, May 3, 2008

recession -- are we there yet?

A lot of folks seem pretty sure we are in a recession. I'm not one of them. As you can see from the graph, the drop in payroll employment was rather minor last month.

The other number I watch is the Index of Industrial Production, which did not fall in March.

The preliminary number for GDP in the first three months of the year came out last week. It indicated low but positive growth -- and doesn't really convey much useful information. GDP data is very useful, among the best, but this preliminary number is so subject to substantial revision that many argue it should not even be released. (Some other countries, like Canada and Great Britain, don't bother publishing preliminary GDP estimates.) At the end of both this and next month, more useful revised numbers will be announced.

In short, these data are not strong indicators of a recession.

What is a recession? The National Bureau of Economic Research (NBER, a very prestigious private research organization) has a committee that officially times the start and end of recessions.

The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, 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. (Source: NBER)

So when does a recession start? When the NBER decides it does! Don't hold your breath: they won't announce it officially until long after it is over. However, by that time it will be obvious we've had one. The only doubt will be the month it started or ended. That is often a judgment call.

I understand people want certainty. Only God should be certain about the current or future state of the economy. While there are people that are willing to provide certainty about such matters, you should avoid such people, especially if you have the condition bovine fecal toxicity sensitivity syndrome (BFTSS).

Be blessed!
RB

1 comment:

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