No rush to use dreaded 'R' word

August 06, 2008|By JAY HANCOCK

With thousands of jobs disappearing each month and consumer spending declining, everybody knows we're in a recession. Everybody, that is, but the people whose task it is to officially say so.

As the election approaches and the economy tops the list of voter concerns, the Business Cycle Dating Committee is taking its sweet time about hanging a scarlet "R" on the country for everybody to see.

The panel, which has been declaring recessions and expansions since the 1970s, is appointed by the National Bureau of Economic Research, a private think tank in Cambridge, Mass. Members reject the idea that they would pull punches to avoid perceptions of political interference or to deprive Democrats of the chance to blame a certified recession on Republicans.

"That's just completely wrong," said Harvard economist and committee member Jeffrey Frankel. "If the verdict were clear - and one can imagine it becoming clear - of course we would declare a recession before the election."

But they're not looking for Amelia Earhart. How much clearer do they need it to be?

The committee's own definition of a recession is "a significant decline in economic activity spread across the economy, lasting more than a few months." (It's not, as is popularly believed, two consecutive quarters of decline in gross domestic product.)

See how that shoe fits.

Friday's July employment report marks the seventh month in a row that American employers have cut more jobs than they created. This year, 463,000 jobs have disappeared across the economy, even as the population and the work force continue to grow.

The last time that happened was early 2001 - a recession. The time before that was 1991 - a recession. And so on.

Consumer confidence is close to a three-decade low. Millions are losing homes. Banking companies have lost $300 billion so far on busted mortgages and other bad paper. Retail sales are falling. The Dow Jones Industrial Average has lost more than 10 percent since the beginning of the year.

Optimists point to relatively benign unemployment results - 5.7 percent for July. In previous recessions, unemployment sometimes reached 8 percent or even 10 percent.

But numerous economists know that the unemployment report has become highly unreliable.

Only people who looked for a job in the previous 30 days are counted as unemployed. Those who want to work but give up after numerous rejections are left out. Nor does the unemployment census include millions collecting disability payments. Many people who are able to work but can't find a job apply for disability instead, according to economists who have studied the matter.

A realistic calculation would probably put unemployment at 8 percent or higher.

What about the production of steel beams and dry-cleaning services and everything else the country produces? At least the country is still increasing its gross domestic product, recession-deniers can say.

Those figures aren't any more reliable than the unemployment accounts, says W. John Williams, publisher of Shadow Government Statistics, which attempts to present a truer economic picture. They overestimate growth by underestimating inflation, he says. Subtract true inflation from the latest GDP ledgers, he says, and you get an economy going backward.

Even with flaws, the government figures showed a GDP decline for the last quarter of 2007, according to new revisions.

"There's no way the economy is not in recession with retail sales down, with durable goods down, with payrolls down," said Williams, who calls himself "a conservative Republican" with libertarian tendencies. "That has never happened outside a recession."

Not so fast, says the Business Cycle Dating Committee.

Sometimes the panel takes more than a year to identify a recession, members say. Economic stats are subject to numerous revisions. They want to make sure they get it right. It's got nothing to do with the election.

"We really try to stick to the science and not think about the politics," Stanford economist Robert Hall, the committee's chairman, says in an e-mail. "I've never been aware of any politically motivated views within the committee to change the timing of our work."

Besides, Hall says, the group's recession declarations, when they finally appear, don't exactly make huge headlines. "We get reported on page C-12 of the Wall Street Journal," he says.

Maybe that's the point.

The verdict comes in plenty of time for the economic historians. But it usually comes too late for policy-makers dealing with a difficult economy or the people who elect them. Hall has been quoted as saying conditions are "recession-like." Frankel acknowledges that "people feel like the economy's in real trouble."

Let's just call it what it is. As the shrinks say, the first step to recovery is acknowledging there is a problem.

jay.hancock@baltsun.com

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