I always take what the “experts” say with a grain of salt. Expert analysis lags real life – they wait for the numbers to “confirm” what the rest of the world – literally – already knew: we are in a bad recession. You and I and everyone else on the street knew this at least 6 months ago. The prices were going up, people were losing jobs, and belt tightening was necessary for nearly everyone. But the “experts” refused to use the word recession.
The National Bureau of Economic Research is one of the major organizations that help define when we are or are not in a recession. While I agree 100% that just about any moderately educated person would have said “heck yeah we’re in a recession” months ago, there kind of has to be some official rules and/or body that defines rules to determine when the economy has hit such a point. The common rule is “2 consecutive quarters of negative GDP growth.” Note that this not declining growth. This is actual reduction in GDP, which is driven primarily by productivity. Which means an actual decline in productivity for two consecutive quarters.
The NBER uses many more stats, though, and determined that we actually have been in a recession since around the beginning of 2008. So forget about 2 consecutive quarters (I think we hit that only in Q3 last year, possibly Q4). According to the NBER it’s been a whole year. That’s pretty scary.
Another reason why defining recession is useful came up yesterday in my macroeconomics class. How can we define “depression” if we don’t define “recession?” Technically, there is no definition of when we are in a depression. Which is kind of scary. That we have some dry definition for recession feels comforting in that light.
The major issues to watch for are the unemployment rate, because GDP growth is based on productivity, and we can’t be productive as a society, on a macroeconomic level, if people aren’t working, and inflation/deflation. If the dollar becomes weaker or prices drop and return on products goes down, then we have serious problems ahead. The specific issues we’re seeing are in many ways responses – no credit because banks are scared about risk and their own futures is a reaction. One that has massive side effects, sure, because in an economy that relies on people spending money whether they have it or not, when banks don’t lend to the population we have a problem. But still a reaction.
Read on for more…