“Are We in A Recession?” Answer: You Wouldn’t Be Asking that Question if You Knew the Definition of “Recession”

Alright, so I saw, for what must now be my 500th time, an article about why we’re in a recession.  Now, I’m not economic expert, but I DO know enough about the economy to know the definition of a recession, but in case you don’t believe me, here’s the definition from the National Bureau of Economic Research (NBER) – it’s kinda their JOB to know these things:

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. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.

Here’s some more information from the Bureau of Economic Analysis (BEA) – it’s kinda their JOB to know these things:

Recession. In general usage, the word recession connotes a marked slippage in economic activity. 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. The designation of a recession is the province of a committee of experts at the National Bureau of Economic Research (NBER), a private non-profit research organization that focuses on understanding the U.S. economy. The NBER recession is a monthly concept that takes account of a number of monthly indicators—such as employment, personal income, and industrial production—as well as quarterly GDP growth. Therefore, while negative GDP growth and recessions closely track each other, the consideration by the NBER of the monthly indicators, especially employment, means that the identification of a recession with two consecutive quarters of negative GDP growth does not always hold. For information on recession, or business-cycle, dating, see: http://www.nber.org/cycles/jan08bcdc_memo.html. Related terms: Gross domestic product (GDP), Personal income.

And here are some answers from the National Bureau of Economic Research (NBER)’s FAQs:

Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER’s recession dating procedure?

A: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in economic activity.” Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.

Q: Isn’t a recession a period of diminished economic activity?

A: It’s more accurate to say that a recession-the way we use the word-is a period of diminishing activity rather than diminished activity. We identify a month when the economy reached a peak of activity and a later month when the economy reached a trough. The time in between is a recession, a period when the economy is contracting. The following period is an expansion. Economic activity is below normal or diminished for some part of the recession and for some part of the following expansion as well. Some call the period of diminished activity a slump.

And here’s another memo that they put out in 2003:

Q: The financial press often states the definition of a recession as two consecutive quarters of decline in real GDP. How does that relate to the NBER’s recession dating procedure?

A:: Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them. According to current data for 2001, the present recession falls into the general pattern, with three consecutive quarters of decline. Our procedure differs from the two-quarter rule in a number of ways. First, we consider the depth as well as the duration of the decline in economic activity. Recall that our definition includes the phrase, “a significant decline in economic activity.” Second, we use a broader array of indicators than just real GDP. One reason for this is that the GDP data are subject to considerable revision. Third, we use monthly indicators to arrive at a monthly chronology.

OK, so, let’s just take a quick look at the GDP numbers:

  1. 2007 I – 13,551.9
  2. 2007 II – 13,768.8
  3. 2007 III – 13,970.5
  4. 2008 IV – 14,074.2

Another factor the NBER looks at is personal income.  Again, we see a rise when looking at the past quarters, as well as the first 2 months of the year (March hasn’t been added to the list yet).

Another factor that the NBER looks at is the unemployment rate.  Here are the statistics from the U.S. Department of Labor Bureau of Labor Statistics:

  1. December 2007 – 5.0
  2. January 2008 – 4.9
  3. February 2008 – 4.8
  4. March 2008 – 5.1

Another factor is industrial production.  Here are some numbers from the Federal Reserve:

  1. October 2007 – 111.8
  2. November 2007 – 112.3
  3. December 2007 – 112.4
  4. January 2008 – 112.6
  5. February 2008 – 111.8
  6. March 2008 – 112.1

And lastly, we have whole-sale retail sales, statistics from the U.S. Census Bureau:

Total Retail Trade (millions of dollars):

  1. November 2007 – 347,509
  2. December 2007 – 394,152
  3. January 2008 – 313,161
  4. February 2008 – 314,663

Total Wholesalers:

  1. November 2007 – 371,890
  2. December 2007 – 356,180
  3. January 2008 – 369,407
  4. February 2008 – 357,684

So, let’s check that definition: 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 (I couldn’t find this, it’s personal income adjusted for inflation, but we DID see a rise in personal income, but I’ll stick this in the maybe category just in case inflation would’ve outweighed the increase), employment, industrial production, and wholesale-retail sales.

So, of the 5 normal indicators, only 1 of them possibly fits the description of a recession.  1 out of 5 isn’t good, so doesn’t that mean that MAYBE-1 out of 5 is just terrible?

Folks, we’re not in a recession.  We may have peaked / be peaking and coming close, but we’re not there yet.  We haven’t seen any decline “lasting more than a few months.”

Sorry, but this is just a media-defined/created recession, and personally, I’m tired of hearing about it.  The media just doesn’t know their facts, and it’s making people think that we actually are in a recession.

Go out there and check the numbers like I just did, and you’ll see that what he media is saying just doesn’t add up.

Done Ranting,

Ranting Republican
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8 Responses to ““Are We in A Recession?” Answer: You Wouldn’t Be Asking that Question if You Knew the Definition of “Recession””

  1. Thweatt Says:

    You, obviously aren’t a research person. Just looking at a handful of numbers from a few months doesn’t establish a trend. You have to look at the larger, overall picture. And you don’t just look at the numbers, you look at how the numbers have changed from previous years.

    Yes the growth is still happening in some areas. But when you look at a larger picture you see that growth is slowing immensely. The link below looks at a more researched analysis that looks at larger groups of numbers in graph form–so you can see the where the trend is going.

    http://www.huffingtonpost.com/hale-stewart/are-we-or-arent-we-in-a-r_b_102598.html
    Because this is a huffington post blog, I am certain that you will think that this is just another “liberal news” piece trying to scare people about the economy. But the numbers and graphs are all there–and they tell a story.

    There were 4.9% GDP gains in the 3rd Quarter of 07, and this slowed down to a .6% growth in the 4th quarter ’07–A pretty big drop indeed. Growth was up a bit in the first Quarter ’08 (0.9%), but we are way off from where we should be.

    The point is, while you do understand what the economic indicators are (which is a good thing), you don’t understand how to truly analyze numbers, which has flawed your viewpoint here. You can’t get well-reasoned insights by just saying “here are the numbers–look we aren’t in a recession cause one is bigger than the other.” That is way too superficial. To truly understand the numbers, you have to look deeper and broader. Some math may be involved. So be scared.

  2. inkslwc Says:

    It doesn’t matter how they’ve changed over the past years. It may be a recession in your opinion, but it’s the past few months that would’ve mattered. I looked at the trends, and the downward trends just aren’t there.

  3. Thweatt Says:

    Well, that just further shows that you have no idea what you are talking about.

    You don’t know how to look at the numbers, and you refuse to educate yourself as to how to do so–That way you can continue believing whatever you want to believe! That’s convenient.

    Enjoy living in ignorance!

  4. inkslwc Says:

    Um, I looked at the numbers. They’ve been going up, except for ONE quarter, when a minority of the numbers went down. It is you who is living in ignorance and refusing to educate yourself. I think somebody’s been paying a little too much attention to the main-stream media and forgot how to think for him/herself.

  5. Thweatt Says:

    Okay–sorry. I didn’t realize that you were blind in addition to ignorant.

    What’s down:
    (1) Growth in Real Disposable Income
    (2) Year over Year Job Growth
    (3) Year over Year Industrial production

    Oh–You aren’t blind! Some things have been going up!
    (1) Civilian Unemployment
    (2) Inflation!

    As I said before. GDP is still growing—slightly. To get the true picture you look at the RATE of GROWTH and compare it to what it should be doing–or was doing in the past. Yes, the actual number for GDP is up from the previous quarter. It is still GROWING. But the the amount of Growth is DOWN. Growth has slowed DOWN.

    It just takes division to see what I am talking about (and the handy Dept. of Commerce link you provided above). Divide the numbers you want to compare. When we do this you can see the slowing of growth.

    GDP Yearly Growth (take the annual number, divide it by the previous year)
    ’04 — 6.6%
    ’05 — 6.4%
    ’06 — 6.1%
    ’07 — 4.9%

    Growth from 3rd to 4th quarter (divide 4th quarter numbers by the 3rd quarter numbers)
    ’03 — 1.2%
    ’04 — 1.4%
    ’05 — 1.1%
    ’06 — 0.94%
    ’07 — 0.72%

    Percent Change Year Ago — 4th Quarter (divide 4th quarter number by previous year’s 4th quarter number)
    ’04 — 6.4%
    ’05 — 6.3%
    ’06 — 5.4%
    ’07 — 5%

    All of these numbers indicate that GDP growth has been slowing for years. We are not peaking, we are beyond peaking. Years beyond it.

    We have already peaked in all of the economic indicative areas. If you look at the broad array of indicators, (like every economist in the fucking country does) we are in a recession. If you just look at the two-consecutive quarters of negative numbers GDP–we’re not quite there. If GDP is the only measure you want to use, we may not ever hit a “technical” recession this year. The economic stimulus package will probably prop that number up through the summer. I don’t know what will happen after that.

    I don’t watch main-stream media. Not because of a liberal or conservative bias that I may feel that they have (and they have both at various times), but more because I feel that the level of reporting on these programs is pure feces. Most of the mainstream media are lazy, incompetent boobs at best, and are puppets for whatever corporation owns them at worst.

    I think for myself. I look at the raw numbers. I personally analyze the raw numbers. It is what I do for a living (though not for the economy–I work in marketing–ha!) Its how you get to the truth of the matter—UNLESS of course. . . the numbers being reported by the gov’t are fraudulent!

    For me, it’s not a left vs. right thing. I could personally care less about how the economy issue is used as a political tool for various candidates. I just happened upon your site during the course of some research that I was doing and wanted to call out the sloppy analysis of the numbers. I guess it wasn’t really sloppy–you just don’t know HOW to analyze the numbers. I just had nothing better to do for the last hour than to try to teach you some basics.

  6. inkslwc Says:

    It’s not whether growth of the GDP is slowing down, if it’s growing, it’s still growing, which means it’s not going down. It has to be NEGATIVE GDP growth, not smaller GDP growth. I’m sorry, but it is YOU who is wrong.

  7. Liberals, Media Ignore GDP Growth and Continue Calling It a Recession « Republican Ranting Says:

    […] As I’ve said before, we’re not in a recession, so the media really needs to stop saying that we are. […]

  8. NOW We’re Officially in a Recession « Republican Ranting Says:

    […] in April, I made the statement that we were not in a recession, because we had not yet seen an economic decline “lasting more than a few months” […]

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