The Economy Is Definitely In Recession

The common layman’s definition of recession is two consecutive quarters of negative real GDP growth, meaning 6 months in which the economy contracts. But, the National Bureau of Economic Research (NBER) uses the collective wisdom of its trusted economists on the Business Cycle Dating Committee to make a determination based on a number of factors.

According to Harvard’s Martin Feldstein, who is on the committee, the Committee looks at monthly data as opposed to quarterly data. So, the two quarters shorthand is not really the right moniker. Broadly speaking, the most important attributes to look at are Employment, Production, Income and Sales. Feldstein says Employment is the most important factor

So what does that mean for us now? Well, the private sector has lost jobs for three months running now (Dec 2007-Feb 2008). And Employment is a lagging indicator to boot. To my mind, this means that we entered recession in December or January. What’s more, the dubious Birth-Death model that the Bureau of Labor Statistics uses to determine Non-Farm Payrolls shows huge net job additions in the most recent months from small businesses being created. This is rather unlikely given the state of the economy and these numbers are very likely to be revised downward next year when the first major revisions are done.

We all know that income growth is non-existent and according to the ISM surveys, both the Manufacturing and the Service sector are in recession. Finally, according to a number of retailers, sales are definitely down. So, the long and short of all of this is that we are definitely in recession. And the downturn has just begun. The question is: how long and how deep?

  1. AnonymousIsAWoman says

    Excellent analysis. Of course, loss of jobs during December should be a real red flag since that was also the all important to the retail sector Christmas season.

    If they don’t have growth, expansion, profits, and at least temporary employment then, when will they?

    Some economists are also raising red flags about inflation. There are even questions as to whether we are headed into stagflation, that intractable situation not seen since the 1970s.

    Stagflation really stumps the economists. In fact, the combination of both inflation and recession (or stagnation) at the same time is, in theory, impossible under classical models of economic theory.

    This economy is in more trouble than the most people realize, and the general public knows it’s in trouble.

  2. Edward Harrison says


    Your comment about job losses in December is right on the money. I am right now about to look at all the revisions the BLS did to last year’s unemployment data. I was listening to a UK radio show podcast called “Wake Up to Money” this morning (excellent show). On the show, they had a guy, Chris Thornburg, who claimed that the BLS just released data showing we have been losing jobs for a number of months as they revised the 2007 employment numbers down.

    I intend to also soon address the issue of Credit Deflation. My feeling is that we will see stagflation, but only in the short term. The credit deflation will lead to money supply contraction and deflation in the medium and long term. That’s why this whole thing is so troubling.

  3. Tom Hickey says

    My suggestion for a revised title of this post: The Economy is Definitely in Recession Again, Or The Recovery That Wasn’t

    The threat of debt-deflation is increasing, with problems growing economically and political both in the US and Euroland, and with China possibly rolling over.

    China’s House of Cards

    1. Edward Harrison says

      That was a mistake. Somehow this first post at CW got pushed into the feed but I don’t think we are in a technical recession now (although it feels like one).

  4. DavidLazarusUK says

    The US economy is in a dire state. I do not trust the unemployment figures. The one to watch is U6 and that is approaching 20%. If you add in the 99’ers then unemployment is looking dreadful.

    I have seen elsewhere comments on the rising architectural billings data, a usually leading indicator, that shows construction might improve late next year. Yet we are in a three year slump and it is only now showing signs of life. I think that this is a sign a false optimism in the commercial sector. What I think is happening is that developers might pay for a design that could be used if things improve. A few million down the drain on a design is a lot less than hundreds of millions, if they build, and find no buyers or tenants.

    I think that stagflation will be the norm for more than a few years. The costs of staples are well above official inflation figures and will remain so for many years. This will cause problems within the US as living standards are destroyed by the lack of wages growth. A few billionaires taking home more money does not equate to earnings growth. In fact governments could actively encourage stagflation as it allows living standards to drop to the point where they can compete on a world market with inflation eroding the value of debts from the bubbles.

Comments are closed.

This website uses cookies to improve your experience. We'll assume you're ok with this, but you can opt-out if you wish. Accept Read More