This week, readers are looking for a straight answer to what seems like a simple question. Is the U.S. in recession or not?
Okay, the answer is "Yes, it is simple question." After that, things get a little more complicated.
How can the economists disagree so greatly with each other? Is we is or is we ain't in a recession? It is a yes-or-no question.
— Mary W., Newport, N.C.3.
President Harry Truman shared your frustration.
“Give me a one-handed economist!” he is credited with saying. “All my economists say, 'On the one hand … on the other hand… '”
Which brings to mind an economist joke or two.
So these two economists were walking in town when they noticed two women yelling across the street at each other from their apartment windows.
“They’ll never come to agreement,” said one.
“Why not?” said the other.
“Because they’re arguing from different premises,” said the first.
(Badda-boom.)
And did you know that you could lay all the world’s economists end to end and they’d still never reach a conclusion?
Okay, maybe it’s unfair to pick on economists. There’s a reason they call it the Dismal Science. For all the disk drives full of economic data available to collect and analyze, there’s no speedometer on the U.S. economy. Each piece of data tells you only a piece of the story, and it’s not unusual for those pieces to contradict each other.
It also takes time to tally the books on the Gross Domestic Product of a $13 trillion economy: the final accounting of all the stuff we make and sell and the services we provide for each other. It takes months. In the meantime, you can look at individual pieces of data puzzle that can be added up more quickly.
Employment is a big one: if the economy is losing more jobs that it’s creating for more than a month or two, that’s a good sign the economy is headed in reverse — or about to. On the other hand (sorry about that), if all those jobs are lost because they went offshore, and U.S. companies keep selling more and more stuff made to order by workers in other countries, the U.S. economy keeps growing.
That seems to be one of the biggest sources of confusion among readers, based on last week’s email. A recession — by definition — doesn’t happen unless and until the overall level of economic activity begins shrinking instead of expanding. In other words, if U.S. companies all lay people off and then sell less stuff, that's a recession.
So far, the best indication we have that a recession is already underway in the U.S. is four straight months of job losses. The latest available reading on the broadest measure of the economy, the GDP, has slowed to nearly zero. But it has not yet signaled that we’re heading in reverse. (Usually, it takes two back-to-back quarters of negative GDP to confirm a recession.)
Okay, so why do so many people believe a recession is already upon us? The jobs data are compelling but not conclusive. Compared to past recessions, some of which were truly nasty, the numbers just aren’t that bad yet. Unemployment is half what it was in the worst of the 1982 recession. Inflation is rising at a very worrisome pace, but it’s still low by historical standards and nowhere near where it was in the 1970s. Why so much gloom and doom?
Many readers blame the media. There are certainly corners of the blog-infused, cable shoutfest that have made ridiculous assessments and dire forecasts not grounded in facts. But we suggest there’s another reason.
There’s no doubt million of families are suffering economically. Our Inbox is full of their stories, and they're not making them up. They’re having trouble buying groceries or paying for their health care. They can no longer afford to pay college tuition. Their wages aren’t keeping up with the cost of what they were able to buy last year. That hardly feels like prosperity.
There’s no doubt million of families are suffering economically. Our Inbox is full of their stories, and they're not making them up. They’re having trouble buying groceries or paying for their health care. They can no longer afford to pay college tuition. Their wages aren’t keeping up with the cost of what they were able to buy last year. That hardly feels like prosperity.
But, so far, that suffering is not the result of a recession. A recession is an economy that is contracting: that may yet happen. But since the last recession in 2001, the U.S. economy has been growing. So any talk about “the deep recession” we’re in just isn’t factually correct.
Unfortunately, for a variety of reasons in America today, personal prosperity and economic expansion aren’t the same thing. There are many serious problems with the way the rewards of the growing economy are being distributed. The gap between rich and poor continues to widen. As those at the bottom are hurting, the rewards of the expanding economy are going to the wealthiest: CEO's get bonuses for screwing up large corporations, lenders focus on profits without regard for the borrowers’ interests, tax cuts are funded with borrowed money. All of this is a real problem.
But it’s not a recession. It’s a problem with a broken tax system, increased concentration of wealth, misguided economic policies and financial deregulation run amok. Unless and until we understand what the real problems are, it’s hard to see how we’re going to find solutions.
Martin Feldstein intimated that if the depreciation of housing prices were to be anything like the appreciation of those same housing prices or greater than then the economy will be in a prolonged downturn. What is that depreciation rate of housing prices now?
— Dave, Newberg, Ore.
Real estate markets are very local, so the national averages may have little to do with what’s happening in your neighborhood. And there are different measures of house price trends; you can pretty much take your pick.
The National Association of Realtors focuses on sales of existing homes, one of the most widely watched measures. The price for an existing single-family home was $198,200 in March, down 8.3 percent from a year ago.
But keep in mind the data can be skewed by a change in the mix of properties. If sales of high-end homes stay strong, the median sale — the one in the middle of the list from top to bottom — may hold up well even though prices at the bottom are falling faster.
New home sales are tracked by the Census Department. From a peak in March, 2007 the median price of a new home had fallen by 13.3 percent compared to a year ago.
The Office of Federal Housing Enterprise Oversight, the agency that oversees government housing finance giants Fannie Mae and Freddie Mae, publishes a House Price Index using data on on “repeat sales.” This index tracks prices of the same house over time, based on the mortgages on those houses moving through Fannie and Freddie’s books.
From a peak in April, 2007 to January, 2008, that index fell 3.7 percent. In February, the latest month available, the index bumped up by 6-tenths percent. Because OFHEO only tracks loans up to $417,000, those numbers may miss what’s going on at the high end of the market.
Then there’s the Case-Shiller Home Price Index (named for the economists who developed it) which is published monthly by Standard & Poor’s. The data tracks repeat sales of the same houses of over time but only in 20 of the biggest cities.
That index fell by 14.8 percent from a peak in July, 2006 to Feb., 2008, the latest data available. What’s most worrisome is that the price drop accelerated sharply between January and February, when the index fell 2.7 percent in one month. (The March index will be released on May 27.)