Friday, May 30, 2008

Scratching Heads About the Economy

James Pethokoukis is wondering what happened to the recession:
What do you call a recession where the economy keeps going up and up, even if a bit sluggishly? Well, my friends, you call that an expansion. And that is what we seem to have right now, despite all the economic doomsaying about a recession or even a Great Depression 2.0. Today, the Commerce Department revised its first-quarter estimate of gross domestic product upward to 0.9 percent from 0.6 percent. That follows 0.6 percent GDP growth in the final quarter of 2007. The revision also makes it more likely that the second quarter will be positive, maybe 1.5 percent, maybe even higher.

Now I went back and checked the numbers for the past 50 years and didn't find a single case of a recession—as calculated by the National Bureau of Economic Research—that started with or contained two straight quarters of positive GDP growth, much less three quarters. In a recent interview with the Financial Times, former Federal Reserve Chief Alan Greenspan admitted he was puzzled that the economy hasn't fallen off a cliff, given the housing crisis, credit crunch, and oil price surge. He told the FT: "A recession is characterized by significant discontinuities in the data.... It started off that way—there was a period of sharp discontinuity from December to March. But then it stopped.... No one knows how this tug of war will end—specifically, whether the financial crisis will end before it drags down the real economy."

No one is saying the economy is booming. Clearly, we are in the midst of dramatic slowdown. But even the most ursine of bears has to be amazed by the resilience of the Amazing American Growth Machine.
Look, food prices are going up, gas prices are going up, there is a credit crunch (but it can't be too bad if I keep getting offers from my bank to give me more credit--and they know how bare my financial cupboard is), a so-called housing crisis which is showing signs of turnaround. So are we really in a recession. As Pethokoukis points out-not technically. But the economic data is divergent to say the least, so here is a thought

Maybe the way we measure a recession needs to be reconfigured? If our measurements are failing us, wouldn't that be a good time to find a new measurement? I don't know enough economics to even make a suggestion as to which data is more important. But surely there are enough smart people who can come up with something, right?

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