Population Statistic: Read. React. Repeat.
Wednesday, May 07, 2021

The general fixation on whether or not the economy’s in recession overlooks one key element: Just what metrics are being used to define “recession”, and if they’re correct.

Ignorance about recessions has taken hold because of a simplistic idea that a recession is two successive quarterly declines in gross domestic product (GDP), a measure of the nation’s output.

The idea originated in a 1974 New York Times article by Julius Shiskin, who provided a laundry list of recession-spotting rules of thumb, including two down quarters of GDP. Over the years the rest of his rules somehow dropped away, leaving behind only “two down quarters of GDP.”

Like most rules of thumb, it’s far from perfect. It failed in the 2001 recession, for example. At the time and until July 2002, data showed just one down quarter of GDP, leading policy makers to claim there had been no recession. Yet, later that month, revisions showed GDP down for three straight quarters. Complicating matters further, with the benefit of time, we now know that GDP actually zigzagged between negative and positive readings, never showing two negative quarters in a row.

The far more important issue in 2001 was the loss of 2.7 million jobs - more than in any postwar recession. Even taking into account labor force growth, those job losses were greater than in most recessions over the past 50 years.

Shorthand tags for labeling economic conditions seem to have more to do with spin control than anything else. Fact is, the Bush administration is loathe to “officially” declare a recession on its watch because it’s such a black eye; and so it’ll tweak the numbers just enough to avoid the obvious. That sustains itself on Wall Street, where ever more media-conscious analysts play along with the blind-man’s game because there’s been no “official” pronouncement. All pretty foolish, but that’s the mechanism at play these days.

All told, if I were to go with a rule of thumb for describing the economy, I’ll stick with Harry Truman’s succinct and distinct delineation between “recession” and “depression”. Frankly, it’s much more apt than the other nonsense.

by Costa Tsiokos, Wed 05/07/2021 09:05:44 AM
Category: Business, Society
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