We're Not In A Recession!

At least by one standard, we’re not in a recession: the economy grew .6% in the first quarter. While the numbers are far from awesome, a recession is classically defined as a contraction of GDP, and that didn’t happen. However, with gas and food and pizza slice prices rising, it’s not to say that we couldn’t be heading towards one.

Economy limps ahead at a 0.6 percent pace in first quarter, better pace than expected [AP] (Thanks to Bladefist!)

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  1. RookOmega says:

    Yay!

    time to spend more of my $600.00 kickback…

  2. Bladefist says:

    Well we could be heading into one. A lot of prices on food and such are remaining relatively stable, but the costs are mounding up, due to ethanol, and eventually they’ll sky rocket. However, for us to be in a classically defined recession, it wont be until the end of the year.

  3. Erwos says:

    I’m not shocked at all. The American public has deluded itself into thinking the boom times of the tech and housing bubbles are the normal way things should be, and thus when we’re not having huge growth, we’re in a recession. The historical average growth rate for the US is something like 2%. Given that context, 0.6% on the bad end of a business cycle seems perfectly acceptable.

  4. Well, what if the economy grows slower than the rate of inflation? The only reason we’re technically not in a recession is because of the spike in food and gasoline prices.

  5. laserjobs says:

    If you use the definition of two contracting quarters of GDP, then there was no recession between 2000-2002. Officially NBER will date the recession starting in December 2007 based on inventory changes and other factors like employment. We will not find out until after the fact.

  6. Bladefist says:

    But lets not dwell on recession. Scares like that cause recessions. The reason oil is so expensive right now is due to the speculators and market scares. Well thats one reason. Believe it or not but your attitude affects the market.

  7. civicmon says:

    I kept telling people we have talked ourselves into a recession.

    And it turns out that we did indeed do that.

    Slow economic growth isn’t desireable but it’s STILL not a recession with positive economic growth.

    This country is used to bubbles and huge booms. That’s the worst way to view an economy. However, granted that most people have zero actual economic knowledge but listen to idiots on TV with even less training talk about “the massive recession we are in” it’s very easy to get caught up in the hoopla put onto us by media-corp idiots.

  8. civicmon says:

    @Bladefist: Oil and commodities are another bubble right now. If the dollar continues to firm up, expect commodities to fall far and fall fast.

    People in leveraged positions will be the first to feel the heat.

  9. stinerman says:

    @Bladefist:

    And, of course, it’s due to the fact that we’re running out of the stuff and China and India want to use it as much as we do.

  10. stinerman says:

    @civicmon:

    We might be in bubble territory right now, but I’d be astonished if gasoline ever went below $3.00/gal. I’d also bet $1,000,000 to your $.01 that we’ll never see it under $2.50/gal.

    Short of making more dinosaurs, we’re essentially done with cheap fuel until we start running cars off of grid power.

  11. Fuzz says:

    According to Government numbers. . . hrmmm . . well, since they have been cooking the books for the past few years, I find a 0.6% growth as about as hard to believe as inflation being in the 2.5% range or that the deficit is in the $200 billion range . . . real numbers tend to tell a different story. But if you want to believe what the US govt’ says, go right ahead. They haven’t lied to you yet, have they?

  12. civicmon says:

    @Steaming Pile: economic growth is measured after inflationary factors. Whether CPI increases by 5% or 100%, economic growth still can occur at a 1-2% level just fine. Countries like Mexico and Brazil had this exact same problem in the 70s.

    Stagflation was caused in the 70s by high oil prices that literally shot up overnight vs. the more gradual rise we saw. That matters greatly since that became a buffer.

    The gov’t was very weak with Nixon resigning/Watergate, Ford being the interm Pres and Carter who was largely ineffective on economic measures. None of those three had any real idea how to combat the morbidly high inflation we had then. Volker had enough foresight to say that economic growth had to suffer to slow down inflation and 20% Fed rates did both, but in 1983 the economy started growing very rapidly.

  13. taka2k7 says:

    not in recession…. sure….

    Me thinks that after the election, revisions to economic growth (or more correctly shrinkage) will be handed out on a busy news Friday afternoon.

    Many parts of the country are already in recession, it’s just creative accounting that is making it unofficial nationwide.

    Oh and don’t get me started about how ‘core inflation’ doesn’t include energy and housing costs. Of course, now with housing prices on the way down, we may actually have deflation (while everything else is experiencing huge inflation).

    Thanks GW, et al.

    (mutters something about “met as liberators… roses in the streets…”)

    Anyway…. “yah, no recession!” (LOL)

  14. civicmon says:

    @stinerman: I see your point and I do think oil will never be back at $1.45 like in 2001, but even if oil falls back to $60/bbl, the pump price is around $2.00-2.20 depending on location. $2.50 isn’t so bad with the dollar where it is and oil prices where they are at.

  15. Bladefist says:

    @stinerman: Yes. In all markets. Steel, Oil, Food. I brew beer, and there is a hops shortage, because the Chinese bought up all the hops, and now they are selling them back to us at a higher price. Nice of them. Pretty genius. But not cool.

  16. BlackFlag55 says:

    I bought 800 shares of VISA IPO at $48. Closed Tuesday at $80.

    That’ll pay for my gasoline this year.

    Quote – “during the great depression, money didn’t disappear, it just changed pockets.”
    Or, one man’s meat is another man’s poy .. son.

  17. unklegwar says:

    You DO know that the GDP excludes some pretty important figures, right? In order to manipulate the impression of growth.

  18. modenastradale says:

    I’m sorry, but it’s no time to pop the champagne.

    For one thing, the only thing that grew this quarter was *nominal* GDP. That is, there was an annualized growth of 0.6% in the face value transfer of currency. This doesn’t account for inflation. It’s a bit like receiving a 1% cost of living adjustment from your employer, when inflation is at 9%. Are you richer? Only in nominal terms.

    The inflation rate for this quarter was 2.6%; therefore, real GDP declined at an annualized rate of 2% this quarter. That’s the real figure of relevance.

    Second, GDP itself is a misleading and somewhat arbitrary figure. It makes no distinctions in the quality of economic activity, but simply aggregates the dollar amount. You’ve got to look deeper than that to gauge the health of the economy. And, looking deeper, we see that (a) unemployment is increasing rapidly — real people are losing their jobs; (b) the banking system is barely staying afloat despite infusions of cash from the federal government and from the Middle East; (c) food and energy prices are spiralling out of control — though perhaps temporarily; (d) large swaths of the population have seen the equity in their principal investments obliterated; (e) consumer debt is at unsustainable levels; and (f) due to severe disruptions in the credit markets, it will be difficult for consumers to make large investments (homes, education) for years to come.

    People may want to say “Whew! Just a scare!” and then proceed to Fry’s with their credit card in hand. But make no mistake — we’re facing significant problems, and difficulties lie ahead.

  19. BigElectricCat says:

    @Bladefist:

    “the costs are mounding up, due to ethanol”

    I hear a lot of bleating about ethanol being the culprit, but I don’t see evidence of all the ethanol that’s allegedly been produced. Can you present some actual *evidence* that corn being diverted to ethanol production is to blame for these amorphous increased ‘costs?’

    “However, for us to be in a classically defined recession, it wont be until the end of the year.”

    I have pagefuls of economists who will tell you that we’re already there.

    [bigpicture.typepad.com]

  20. adamcz says:

    Warren Buffett often points out that any time the GDP rises less than the population does, we have per capita contraction. That should be the more important metric, because each person has less than they had before.

  21. JustThatGuy3 says:

    @modenastradale:

    Wrong. The 0.6% figure was for REAL GDP growth.

    [www.bea.gov]

    As to the rest of your commentary, you’re right that those are clearly problems, but saying that GDP is misleading really isn’t fair. It’s not DESIGNED to tell you about unemployment, etc. Saying its misleading is kind of like complaining that a car’s 0-to-60 time doesn’t tell you enough about fuel economy.

  22. modenastradale says:

    @JustThatGuy3: You’re right. The first article I read this morning (before the Consumerist) misstated the 0.6% figure as preinflation.

    As for my comments about the weaknesses of the GDP figure, I don’t think they’re unfair, just practical. A car’s 0-60 statistic is not a problem if you’re truly only concerned with how fast the car gets from 0 to 60. If, however, the automotive culture comes to judge the entire worth of an automobile by its 0-60 metric, it’s appropriate that the chosen metric doesn’t describe safety, reliability, styling, handling, braking, driver feedback, fuel efficiency, etc. Overall you could have a real dud of a car, with a top 0-60 speed. Right?

    That’s the problem with GDP. People tend to look at it as a definitive snapshot of the health of the economy when, in fact, it provides none of the information necessary to gauge the stability or practical performance of the system.

  23. ricosoma says:

    If you think the GDP numbers are REAL I’ve got a nice shiny bridge I can sell you for cheap money!

  24. RandomHookup says:

    Nothing like a group discussion of macroeconomics by non-economists. Not that I know anything either, it’s just a really painful process.

  25. t0fu says:

    recession

    noun
    1. the state of the economy declines; a widespread decline in the GDP and employment and trade lasting from six months to a year.

    By Definition, we are not in a Recession.

  26. Orv says:

    The news reports I heard today said that GDP grew because of an increase in business inventories. Can someone explain to me how that works? Businesses had a lot of stuff they couldn’t sell, and that’s somehow a good thing for the economy? I don’t get it.

  27. dragonfire81 says:

    What better way to deal with a problem than to convince yourself it doesn’t even really exist?

    Just because we aren’t in a full blown recession doesn’t mean we aren’t close to one, or that the situation is all sunny and green. Wake up people!

  28. Bladefist says:

    @dragonfire81: You wake up. We aren’t truely trying to ignore a problem. We are trying to calm fears in the market, which will help the market.

    90% of the reason recessions happen is only because of market fears and speculation, and has nothing to do with anything real.

    Also 100% of the stats in this comment were made up.

  29. thedannimonster says:

    I think it’s apt to point out this article in the St. Petersburg Times:
    [www.tampabay.com]

    The article provides an overview of how GDP, CPI and Unemployment calculations have been altered in the last 50 years as a means of making the numbers look more positive (rather than actually reflect the economy).

  30. If beer prices increase heavily I am going to be one mean drunk on a bicycle.

  31. chrisjames says:

    @BigElectricCat: I agree. I’d like to see some facts about this, not countless articles repeating the same thing like a recession mantra.

    My opinion (only good enough as an opinion) is that the prices are increasing partly because of speculation that ethanol is displacing food production. Similarly prices are increasing because of speculation that people in “booming” countries are wanting to buy their food instead of growing it. Just like speculation is hitting oil prices, which is another factor in food prices. What I mean is that I don’t make a solid connection between any of these things and rising food costs beyond the speculation, which has a direct impact. It’s not all ethanol’s fault, but a little more consideration in how we dole out subsidies, which have more capacity to hurt than to help, would be prudent.

    I’d love to be proved wrong, if only because so few people give straight answers about such things.

    Anyway, don’t forget that “recession” is just a word. The economy will do what it will even if you call it Happy-Orgy-Time. Trying to cement a definition for an amorphous term like “recession” is as useful as farting in the wind. What’s important is improvement and production, not bickering over words, even for die-hard economists.

  32. Orv says:

    One thing I’m curious about is how likely this number is to be revised downward in the upcoming weeks. Remember that this is a preliminary figure.

  33. Techguy1138 says:

    @Bladefist:

    That’s pretty propaganda. Recessions are real not just because people choose to believe or not believe in them.

    Wide spread belief can delay either notion but not stop it. For years we have had irresponsible economic policies that delayed a economic down turn. Now it’s time for it to come.

    Seeing how the dollar is falling on international markets a traditional recession may not come. What we will have is stagflation. A falling dollar with stagnant growth and inflation.

  34. @Bladefist: You mean, clap louder? Pass me the denial juice.

  35. @modenastradale: “For one thing, the only thing that grew this quarter was *nominal* GDP. That is, there was an annualized growth of 0.6% in the face value transfer of currency. This doesn’t account for inflation. It’s a bit like receiving a 1% cost of living adjustment from your employer, when inflation is at 9%. Are you richer? Only in nominal terms.”

    Didn’t I just say that?

  36. sirellyn says:

    @thedannimonster: That article you’ve posted is spot on. I’ve been doing my own research into prices I pay for about a year now, and even conservatively there is NO WAY CPI comes close to matching them. I’m not exactly a spend thrift either. I’ve noticed GDP hasn’t looked right for a while.

    The US is quite certainly in a recession right now.

    I recommend everyone read that article you’ve recommended;
    [www.tampabay.com]

    These aren’t doom and gloom numbers, they are actually truthful. And I consider telling the truth to be positive.

  37. BigElectricCat says:

    @t0fu:

    “By Definition, we are not in a Recession.”

    My economists disagree with your dictionary.

    [bigpicture.typepad.com]

  38. BigElectricCat says:

    @chrisjames:

    Yeah, I agree. I’m not saying that corn ethanol *isn’t* a contributing factor, but if corn is in such short supply, then where’s all the ethanol that was made from the ‘missing’ corn? I’m not seeing it. I’m trying to find detailed grain export figures to see if maybe we’re selling more corn overseas and not diverting it to ethanol production (as we’re being told).

    FWIW, I’m more in support of cellulosic ethanol, since the production of it doesn’t rely on edible grain feedstocks, like corn ethanol does. Switchgrass is a good crop to grow if you’re looking to produce cellulosic ethanol. Sugarcane bagasse is good for that, too. Hell, the Brazilians are producing godawful quantities of cellulosic ethanol from sugar bagasse without compromising their sugar crop; let’s do the same.

  39. Hodo says:

    @laserjobs: Exactly my friend. Also, keep in mind that GDP measurement is an . . . shall we say “art”? GDP values are estimates that tend to get revised after the fact with alarming regularity (and with little press coverage I might add). In fact, if you go back to last year’s Q2 GDP report, you’ll note that for the time period of 2002-2007 no fewer than 6 quarters had their GDP values revised . . . all of them downward. I suspect that we’ll see Q1, 2008 GDP revised downward sometime later this year, and the revision will take the reported 0.6% into the negative. Generally speaking, economists are awfully at “predicting” recession. One recent stat I saw was that more than 60% of economic ‘forecasts’ didn’t indicate recession until after the recession was already under way and observable.

    Oh yeah, and btw, during the Clinton administration (this isn’t a blame game, we’ve had other changes under other administration, just using the Clinton administration label, because I forget the exact date) how CPI is calculated was . . . altered. This was right around the same time that the US Gov’t went to CPI-adjusted bonds and SSI payments. The, uh, “adjustments” to the CPI calculation had the effect of [wait for it] lowering reported inflation. Wierd, huh? So all of those gov’t bonds and SSI payments would be either lower-priced (in terms of interest rate) or escalate slower. What an amaaazing coincidence, don’t ya’ think? So, to put it bluntly, the CPI numbers you read about today are artificially low relative to pre 1992-2000 levels. Information is subject to corruption like virtually any other commodity, it would seem.

  40. DismalScience says:

    @Hodo: The adjustments made during the Clinton administration (I assume you’re primarily speaking about the hedonic price adjustment) have a solid technical basis that doesn’t require a conspiracy theory to explain. This adjustment has become increasingly important with advances in technology, so the timing shouldn’t seem so strange.

    All the adjustment does is take into account the fact that the “quality” of many goods (it’s often useful to think about this in terms of the services the goods provide) changes over time, while prices remain the same. A good example would be in computers– Let’s say that three years ago, you would have been able to buy a computer for the same amount of money as today. Without the hedonic adjustment, we’d say, well, a computer is a computer, and thus inflation in computer prices has been 0%. But that’s not accurate, because the computer three years ago would have had about a quarter the memory and processing power as the one you could buy today, for the same price.

    As far as the revisions made to the GDP data– keep in mind that “advance” GDP estimates are released a month after the end of the reference quarter, when only a fraction of the data used in each subsequent revision is available. As better data become available, the estimates are revised. The process is actually quite transparent, if you’re interested in reading the documentation.

    Also, you seem to conflate the idea of a “forecast” with an “advance” release– this release is not a forecast, it’s just a (very, very preliminary) estimate of past activity… think of it as a first step towards observing any potential recession or lack thereof.

    There are plenty of issues with Federal statistics (indeed, note the disclaimer in the GDP press release: “The Bureau emphasized that the first-quarter ‘advance’ estimates are based on source data that are incomplete or subject to further revision by the source agency”)– but there isn’t a lot of conspiracy going on.

    The GDP release is here.

  41. stinerman says:

    @civicmon:

    I’d honestly be surprised if oil ever went back below $100/bbl. Gas isn’t going to get any cheaper over any long term. This isn’t some sort of hiccup that we’re seeing. If I were a betting man (and I had money to bet) I’d be putting serious money on gas being around $8/gal come 2012.

  42. tasselhoff76 says:

    There was actually a small piece on this on NPR recently – you can read a transcript here – [tinyurl.com] The economist, Kevin Phillips explained: “You had gathering inflation because of the Vietnam War. You had currency gyrations. You had the oil price problem creeping in. And this challenged the politicians because basically they didn’t want to have to say, this is awful and these numbers prove it. And the numbers were softened a little bit, and that was the origin of Pollyanna creep.” It is really an interesting topic and something not discussed enough.

  43. @tasselhoff76: Two notes:

    One, Kevin Phillips is not an economist. He doesn’t have a degree in economics, and his writing reflects his lack of economic understanding. An example from Jacob Weisberg of Slate:

    “The tip-off that he doesn’t know what he’s talking about comes in the section about oil, when he tries to explain that not all ‘proven’ reserves are available. Drilling may become uneconomic, Phillips notes, if more energy is required to find and extract a barrel of oil than the barrel contains-‘at least until the price of oil rises.’ Sorry, but if it costs more than a barrel of oil to make a barrel of oil, a higher price won’t help.”

    Two, the NPR piece is just basically a radio short of a piece that was in this month’s issue of Harper’s.

    He says a lot of really dumb things in it because he doesn’t understand basic economic issues– like the housing imputation, that he brings up, for example. All the housing imputation does is treat owner-occupied homes as though the owners are renting their houses to themselves. If you didn’t do this, you’d only capture the economic activity that occurs when owners rent their houses to someone else– and so when rental rates went up, GDP (and thus the growth rate of GDP) would climb. We don’t want GDP to go up because more people are renting, or down because more people own their own homes, because that’d be really misleading.

    Ironically enough, if we did things his way and did away with the imputation, GDP growth would actually be artificially HIGHER right now, because all the people whose homes are being foreclosed upon and who are forced to rent instead would be pushing up the level of recorded economic activity.

    Of course, his audience mostly doesn’t understand this, either, so he sounds convincing. Anyway, these bad and wrong ideas aren’t even his. He’s just echoing someone else (John Williams, creator of the Shadow Stats website), who is a total crank himself. This other character would have you believe that inflation is at almost 12% right now, which would be awesome, because then my credit cards with a 9.8% APR would be basically paying me to carry a balance– but which isn’t true at all.