Recession yet or not quite?

Some people convinced themselves that a recession started last November or December or January, but it is still not quite clear whether we are actually "there" yet, even though we may be real close. Although the Business Cycle Dating Committee (BCDC) of the National Bureau of Economic Research (NBER) is considered the "official" arbiter of dating that start and end dates of recessions, they usually take their time (6 to 18 months) and sometimes will not even say that a recession started until it is over. Meanwhile, professional and amateur economists and pundits and columnists and analysts continue to guess whether or when the recession did or will start.

Sure, payroll employment has declined every month in 2008 and industrial production has dipped, but real GDP has still not dipped significantly and real personal income is still relatively strong. Sure, for most practical purposes you can say that the U.S. economy is "effectively in a recession" despite GDP and real personal income. In fact, you could also say that August 20007 really marked the point where the economy "started to fall apart." You can also point to a number of sectors of the economy and say that those individual sectors are "in recession."

I would note that the decline in payroll employment is still less than one million and still less than one percent. That is hardly what would be called indicative of a deep recession.

One thing to keep in mind is that the U.S. economy shifted from being a manufacturing economy to being primarily a service economy and the structural transition away from manufacturing continues, so it is difficult to attribute any manufacturing contraction as to whether it is structural or cyclical (recession.) This is true of employment as well, where some job cuts may be temporary due to "the recession" and bounce back when business picks up, but other job cuts may be permanent and it is difficult to distinguish between the two. Personally, I think a fraction of the job losses are in fact due to a slowing of business, but another fraction of the cuts are simply companies taking advantage of the slowing to accelerate painful restructuring.

Right now, the big concern is not the state of the economy today, but where the economy may be headed in the coming months. A credit crunch can certainly send an economy into a deep and long and wide recession, but a dramatic freeing of credit, such as what The Big Bailout intends, can also kickstart a stagnant economy.

In short, the U.S. economy may be even closer to an even deeper recession, but we still are not quite there yet.

-- Jack Krupansky