CBO does not expect current slowdown to register as a recession

The Congressional Budget Office (CBO) is about as close as you are going to get to an independent, impartial, non-partisan, fair, calm, truthful, sensible opinion in Washington, D.C., not to mention very thorough. They nominally work for Congress but operate independently, and they are certainly independent of the White House and the Federal Reserve and the U.S. Treasury. CBO is concerned about the recent slowdown, but they still insist that a recession is not the slam-dunk that many people are chattering about. In their testimony before Congress today they said:

The state of the economy is particularly uncertain at the moment. The pace of economic growth slowed in 2007, and there are strong indications that it will slacken further in 2008. In CBO’s view, the ongoing problems in the housing and financial markets and the high price of oil will curb spending by households and businesses this year and trim the growth of GDP. Although recent data suggest that the probability of a recession in 2008 has increased, CBO does not expect the slowdown in economic growth to be large enough to register as a recession. Economic performance worse than that suggested in CBO’s forecast could significantly decrease projected revenues and increase projected spending. Furthermore, policy changes intended to mitigate the economic slowdown would, by design, tend to increase the budget deficit in the short term.

CBO expects the economy to rebound after 2008, as the negative effects of the turmoil in the housing and financial markets fade.

As far as defining "recession", CBO notes:

The National Bureau of Economic Research, which by convention is responsible for dating the peaks and troughs of the business cycle, defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real [inflation-adjusted] GDP, real income, employment, industrial production, and wholesale-retail sales."

Note, that even if there were some modest decline in those metrics, that would not be sufficient to mark a recession. There needs to be a "significant" decline and it needs to last "more than a few months."

-- Jack Krupansky