Two-Quarter Recessionaries
To those who argue that we can absolutely, positively NEVER have a recession that doesn’t involve two consecutive quarters of negative economic growth, I have two questions:
- What has to happen for you to stop asking “Dude, where’s my recession?” and start saying “Dude, there’s my recession,” and for how long?
- Does the answer to #1 depend on which months of the year are involved?
August 2nd, 2008 at 7:10 pm
Well, how about when the media stop declaring that we’re days away from the next GREAT DEPRESSION!!!!!!
Here’s a great experiment. Tell yourself you’re depressed. Constantly mutter about how depressed you are. Have others tell you repeatedly that you’re depressed.
Guess who’ll eventually become depressed?
Seriously, the economy has been pretty damned good. But with the constant harping on how shitty the economy is by the media, no wonder things start to go south.
Besides, they need a bad economy to (a) sell newspapers and (b) give Barack Everybody Dance Now Obama and excuse to buy his way into the election by offering to pay our way out of the recession!
(I’m not an economist and I don’t say “Dude, where’s my recession”)
August 2nd, 2008 at 7:33 pm
You didn’t answer my question. What the media does or doesn’t say is irrelevant. What would have to happen, and for how long, for you to say it is a recession. I’m not asking if those conditions are met, only what the conditions are.
August 2nd, 2008 at 8:15 pm
True, I popped off with a tangent.
If the terms of a recession is two quarters of negative growth, then that would be it for me. But remember, I couldn’t tell the difference between a Mutual Fund and Cottage Cheese.
August 2nd, 2008 at 8:25 pm
I think mutual funds have larger curds.
August 2nd, 2008 at 8:48 pm
Ok, now on to question 2. Does it matter whether those two quarters happen to line up with calendar quarters, or would any six-month period suffice? It’s not hard to envision a scenario that could either result in one really, really bad quarter or two moderately bad ones, depending on the timing.
August 3rd, 2008 at 8:27 am
I’d stick with the official definitions, because all of the individualistic ones tend to reflect the point of observation of the observer. From my perspective, sure, it’s a recession — because I’m involved in construction, and housing prices are experiencing major declines, and residential construction is way down. (But yes, I still have my job.)
But my point of view isn’t indicative of the economy as a whole, and it would hardly be reasonable for me to say that the US is in a recession just because my particular sector of the economy is doing badly. The last time that the economy really was in a recession (2001), the construction industry just flat skipped it; building kept going on, and from my point of view, things were booming.
August 3rd, 2008 at 12:24 pm
Define “official.” The closest thing I can find to an “official” definition of a recession is “Whatever the National Bureau of Economic Research’s Business Cycle Dating Committee chooses to call a recession.” I’m sure they have a formula of some kind, but it’s a hell of a lot more complicated than “two consecutive quarters of contracting GDP” rule of thumb that that the liar-liar-pants-on-fire crowd routinely misrepresents as a hard and fast requirement. If that really were the definition, the 2001 recession wouldn’t count as a recession, either.
August 3rd, 2008 at 10:14 pm
With a recession being defined as two consecutive quarters of negative growth, is it possible that: while we aren’t in a recession now, we will have been in one if we consider this date at some point in the future?
So after you have the two consecutive quarters, is the recession considered to have started at the beginning of the first quarter?
August 3rd, 2008 at 11:14 pm
No matter how one defines “recession,” we never have economic data current enough to tell us if we are in one at the time. This, more than the semantic definitions, is why I find the “liar liar” crap so infuriating. No matter how good or bad the economy may be at any given time, any discussion over whether we are or are not in a recession will necessarily involve a fair amount of guesswork. If my guess is “yes” and yours is “no,” then it stands to reason that one of us must be wrong, but it doesn’t follow that either of our views is inherently unreasonable, let alone that either of us is lying.
Assume for argument’s sake that the two quarter rule of thumb really should be the proper measure of what is or isn’t a recession. Right now we know there was negative growth in 4Q of last year. We don’t know if there was positive or negative growth in 1Q of this year. A few months from now, we should. If it turns out 1Q was negative, there’s your two-quarter recession. But it wouldn’t mean we are in recession at the time we learned about it (e.g., October), nor even that we are in one now. All it would mean is that there was a recession, which began sometime around 9/1/07 and ended sometime around 3/31/08, give or take a couple months in either direction.
Sometimes we don’t even learn that quickly. The 1990-91 recession ended in March of 1991, but we didn’t know that until December of 1992.
August 4th, 2008 at 1:51 am
There really isn’t. The NBER pretty much sits a bunch of economists in a circle and asks what each of them thinks. They have an official definition, but a new one is tossed out every few years — the most recent, oft-cited one is both vague and less than five years old! — so it’s not exactly hard to be manipulated regularly.
I’m an economic libertarian; in my experience there are very few situations where having the government jump into action too late or not at all was more deadly than having the government jump into action too early. Those times where intervention is important, the necessary emphasis is more related to dealing with fraud or similar concerns rather than anything involving monetary policy.
Because of that logic, I prefer to stick with quarter-based information. In extreme cases, six-month ranges with only one full quarter known well probably work well enough, but those also tend to be situations where we already know that something is wrong and thus the question of a recession is probably academic at best. If the information is reasonably reliable, even in more moderate cases it’d make sense to call it. That said, there’s not that much in the way of reliable information; even official numbers consistently end up being revised upwards.
I prefer the 6 months GDP value, but I’m by no means married to it; I just like having a known and less volatile concept, rather than letting the NBER pick whatever they thing is the best option. The official NBER definition is, at least as of today, 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.”
I’ll take the word “more than a few” to mean “more than three”, and for “significant decline” to mean actual negative values (ie: going from a N% growth in GDP to a N%/2 growth is not a significant decline in real GDP, while going from -N% to -N%/2 change in GDP still is a significant decline, assuming N is positive). “And” means “all of”.
At least for now, I’m not sure we’re at that. Retail sales grew, albeit minimally and in less-than-real terms, as recently as June.
August 4th, 2008 at 11:55 am
Two fiscal quarters. Even if it is six calendar months that don’t line up with fiscal quarters, if it isn’t enough of a negative growth to actually span two fiscal quarters, then it is so mild that it isn’t worth calling a recession.
August 4th, 2008 at 12:54 pm
Phelps, it sounds like you’re saying that if the economy grows enough from 1/1 through 2/14 and from 8/15 through 9/30 of any given year to keep 1Q and 3Q in positive territory, the economy could contract every single day for a six month period in between, and it would not count as a recession. Yet if the same exact sequence occurred a month and a half earlier or a month and a half later, that same six-month lull would be magically converted into a “recession” solely because it happened to line up with two calendar quarters. Is that actually your position? Really?