A REPUBLICAN RECESSION :

U.S. Economy Grew at a Sizzling 5.8% Rate in the First Quarter (REUTERS, 4/26/02)

The latest report from the Commerce Department showed the economy snapping back sharply from one of the mildest recessions in history but may not fully resolve lingering concerns about the strength of economic growth going forward.

U.S. gross domestic product, measuring the amount of goods and services produced within U.S. borders, bolted ahead at a 5.8 percent annual rate in the first three months of this year -- a full percentage point higher than the forecasts of private economists. The latest growth in GDP was the strongest since the economy soared 8.3 percent in the final quarter of 1999.

The other Brother points out that in their eagerness to portray W's tax cut as causing an economic disaster, the press has played fast and loose with the definition of a "recession". Previously, it has been understood that, technically speaking, a recession requires two consecutive quarters of actual shrinkage in GDP. To the best of our knowledge there was just one quarter of decline in 2001.

UPDATE : In the Comments, M Ali Choudhury (The AntiPundit) posted a link to a story from last November in The Economist : Say “R” : Economists have a dismal record in predicting recession (The
Economist, Nov 29th 2001)

As recently as February [2001], 95% of American economists said it wouldn't happen, but it has. America is now in recession, according to—don't laugh—the Business Cycle Dating Committee at the National Bureau of Economic Research (NBER), the official arbiter of American business cycles. This group of six economists reckons that the recession began in March, after ten years of expansion, the longest in American history.

To followers of The Economist's R-word index (which counts the number of times that the word “recession” appears in American newspapers), this comes as no surprise. The index, unrigorous as it is, has accurately pinpointed the start of previous recessions, and it started to flash red in the first quarter of this year. But most American economists thought otherwise. Last January [2001] The Economist's poll of forecasters predicted, on average, that GDP growth would be 2.3% in 2001. Now the country will be lucky if it sees growth of 1%. Even in early September few economists were forecasting a recession. Now it appears that one had already been under way for almost six months.

How should you define recession? The most popular rule of thumb is that it means two consecutive quarters of declining GDP, and so far America has seen only one quarter's decline. But the NBER committee rejects this criterion as neither necessary nor sufficient.

It is possible to have a recession without two consecutive quarterly contractions, as America and others have had. GDP could fall sharply in one quarter, for example, rise slightly in the next quarter, and then plunge again in a third. That certainly ought to count as a recession. On the other hand, if output fell only slightly in each of two consecutive quarters, that might not be enough to warrant the label. Most newspapers were quick last week to declare the German economy in recession after German GDP fell by 0.03% in the second quarter and by 0.1% in the third. That would probably not pass the NBER recession test.

The NBER committee defines recession as a significant decline in activity, spread across the economy and lasting more than a few months, and also visible in industrial production, employment, real income, and business and retail sales. The declared starting-point of a recession is then based on a compromise between the different times at which all these indicators start turning down.

That's pretty amusing, a story on how hard it is to date a recession that's totally wrong about us being in one.

Thanks, AntiPundit

Posted by Orrin Judd at April 26, 2002 10:00 AM