1/19/2008

Are we in a recession?

If we want to throw this term around loosely, then yes, today's NY Times suggests, our nation currently may be in the grips of a recession. Lately there has been a lot to be said about our "are we, or aren't we" recession. But the discussion could end so easily and with a definitive answer. We learn in our most basic macro textbook that after two consecutive quarters of negative economic growth we then will find ourselves in an actual recession. I've heard the story of Ronald Reagan redefining "depression" and "recession" to help him win the election against Carter, but that was all just slick political posturing.

To be more accurate, what our national economy has recently suffered is merely slow growth, but "slow growth" is boring and doesn't get the same frenzied reaction as "recession". Certainly everywhere we look we see a gloomy picture with the housing, job, and stock markets dropping and oil prices, unemployment, and inflation rising, but luckily we can all take comfort in knowing that we are not, by its standard definition, in a recession.

7 comments:

Dr. Tufte said...

Umm ... what happened to the pseudonym you chose in class?

This is a pretty reasonable analysis. It could be pushed further: how can people say we're in a recession - which requires two consecutive quarters of negative growth - when the last two quarters of growth were above average (and bordering on excellent), and we haven't had ANY quarter of negative growth in almost 6 years?

I'll give you one answer: they're just lying.

Here's a tip for recession watchers. Prices have almost nothing to do with recessions. This is because price increases hurt one party, but they help the other. The same for price decreases. If you're trying to figure out recessions, you need to be looking at quantities. This is the problem with all the worries about mortgages, oil prices, and the stock market: we're way too focused on one side of some things that are going to just cancel out.

Trinity said...

Dr. Tufte- I appreciate your comment reminding us to focus on changes in quanitites instead of prices. It is easy to see rising/falling prices and think the economy is going one way or the other but quanitites never lie. Thanks.

Reagan said...

Dr. Tufte said we should be concerned with quantity rather than price when talking about a recession. If you do a search about inventory and production levels you will find that most companies too much inventory and are starting to decrease production. Many have said that they have inventory levels that are at their highest levels during this decade. These companies also report that they feel they need to reduce these levels back down to around 2004-2005 levels because of decreasing demand. This information does give us an indication where companies are heading which may lead to negative growth and a recession. We should discuss this type of information when we talk about recessions because it focuses on what causes a recession, negative growth, not prices.

TheFindlay said...

Dr. Tufte
I disagree because whether we want to admit it or not we are in a recession. The most successful analyst I have ever met or heard of doesn’t flinch quickly and he is confident of our recessionary state. Unlike others he sees that and is currently taking advantage of it; a practice that more should embark. Stop denying the facts and start taking advantage of them.

Dr. Tufte said...

It's 4 months since thefindlay's post, and the data from that quarter shows no recession. Gotcha!

Starcire said...
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Starcire said...

If we are in a recession or not is up for debate. I on the other hand choose not to participate in the recession. Go to http://machinistmate.blogspot.com or http://theseaport.blogspot.com to read an interesting article posted on both these sites.