March 26, 2006

Weekend Question 2: On the Timing (and Existence) of the Last Recession (also see Oct. 2007 Update)

Why doesn’t anyone remember that the previous “recession” started in July 2000?

The Blade’s memory isn’t too sharp this morning — This is from an editorial primarily about the ongoing soap opera called “What Will Hillary Let Bill Say during the Next Two Years”:

In fact, the situation in 2000, with prosperity generally reigning in the country, the budget in surplus, and America’s foreign affairs situation looking reasonably bright, Mr. Gore might have been expected to roll into the White House.

The economy was deteriorating in the third quarter of 2000. GDP “growth” was a negative 0.5% (to see this, change the starting date on the interactive table at the link).

I have “recession” in quotes because, believe it or not, there never was a recession by the traditional definition, which is two consecutive quarters of negative economic growth. The third quarter of 2000 and the first and third quarters of 2001 were negative, but that’s it. There were never two quarters in a row, and overall growth during the five-quarter time frame involved was actually positive (less than 0.5% — not impressive, but more than zero).

Well of course nothing’s that easy. There’s actually a group of people that decides whether we’re in a recession:

By general agreement, the official determination of recession is left to the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER). The NBER is not a government agency; it is a private organization that works to further understanding of the economy. This non-profit, non-partisan organization employs hundreds of economy experts (university professors, mostly) to analyze and report on the U.S. economy.

Official, oschmicial.

At one point, there was some degree of economic consensus that the recession began in July of 2000 and ended in March of 2001 (2007 note: info at link was changed after publication of this post, and references to what was just noted are no longer there). By the time the “non-partisan” (uh-huh) NBER declared its end (third paragraph at link), the time frame had changed from March 2001 to November 2001.

How convenient.

This is why I tend to favor back-of-the-envelope definitions that people can understand, and more importantly that others can’t manipulate, as I believe happened with the gaming of when the last “recession” really occurred.

Regardless, The Blade is certainly wrong in characterizing the economic climate in the runup to the 2000 election as “prosperity generally reigning.” But, like most of the WORMs (Worn-Out Reactionary Media, known to most as The Mainstream Media), they have convinced themselves that general economic malaise started on January 20, 2001, the day of George Bush’s first inauguration.

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UPDATE, Oct. 12, 2007: In the course of creating this post relating to reporter’s coverage of the 2006-2007 full-year federal deficit, I came across this link at NBER that gives plenty of evidence to those of us who believe that it blew the call it made on the timing of the so-called “recession.” That link contains this chart:

NBERindicatorsThru2001

What the chart says is that the NBER somehow concluded that the “recession” started in March 2001, even though industrial production had peaked six months earlier (i.e., September 2000), and real sales seven months earlier (August 2000).

As to employment growth, a look at this BLS chart (also present at this BizzyBlog post) shows that subpar employment growth also began in the summer of 2000:

JobChanges1997to2007

From the first reported loss of jobs in June 2000 through February 2001 (a nine-month period), the economy only added 612,000 jobs — a tepid performance well below the rate of growth in the workforce. Additionally, the unemployment rate started creeping upward in January 2001. The point is that meaningful employment growth ended, and the employment situation was deteriorating, starting in the middle of 2000 — well before the NBER’s March 2001 “recession” start.

The only reason the final factor of Real Income was going up during this time was because anyone who could was cashing in their stock options and taking their capital gains before things got worse in the stock market (which, of course, they did).

In sum, the trough, such as it was, clearly occurred in the summer of 2000. If NBER is going to insist that a “recession” occurred, the time period they have pegged is simply wrong.

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