At first glance, the job numbers of the last week seem to offer a mixed and confusing picture. On the one hand, today’s headline from the Bureau of Labor Statistics certainly sounds like good news: the unemployment rate finally dropped below 10.0% — to 9.7%. On the other hand, today’s establishment survey of employment, which most of the time is a more reliable measure than the unemployment rate, still shows job change numbers that are negative. Furthermore, recent numbers on claims for unemployment benefits have been discouraging.
Is the United States in recession?If one looked solely at the adverse shocks that have hit the economy over the last year, one would infer an unusually high probability of a recession.If one consulted some of the most import economic measures over the last year, one would say the country clearly entered a recession last January.If one gauged the popular mood, one would hear, “Of course we are in recession !”
The one criterion that has been missing is the one criterion that people most commonly have in their minds as the definition of a recession:two consecutive quarters of negative growth.This morning, October 30, the Commerce Department released the advance estimate of GDP for the 3rd quarter.It showed a decline. The decline was small: just 0.3 per cent at an annual rate; and it is only one quarter, not yet two. But at this point there can be little doubt that we are really truly in recession.
To us, the very weak employment report last Friday pretty much closes the argument when it comes to whether or not the economy is in recession—it is.
The model puts the chance that August will be classified as part of a recession by the NBER at 95%.Several factors push the probability so high.Most important is the ongoing labor market deterioration.The large increases in unemployment combined with the decline in payroll employment, both over the last three months, are very significant signs pointing toward recession.The decline in the stock market and the fact that housing starts are off 30% from the prior year also push up the estimated probability.
In fact, April was the only month this year for which the data did not signal a recession, as the probability temporarily dipped below 50%.The reasons for this were: (1) some temporarily better labor market data, since largely revised away; and (2) the brief rally in the equity market following the government brokered purchase of Bear Stearns.Apart from this dip, the general trend has been a slow drift up from a somewhat high probability of being in recession to a very high probability.,..
….Put differently, if the economy is not in recession now, then the meaning of the term has changed, at least according to this model.
The Commerce Department this morning revised upward its estimate of first quarter growth in real GDP to 0.9% (precisely in line with the expectations of economic forecasters).
As a member of the Business Cycle Dating Committee of the NBER, I am asked frequently if the country is about to enter a recession, or if we have already done so. I cannot speak for the Committee, and I am not a professional forecaster. But I can give my views, for what they are worth.
It is hard to say that we entered a recession in the early part of the year, without a single negative growth quarter, let alone two of them. Even so, three minor qualifications to that 0.9% remain: 1) The number will be revised again, and could move in either direction. 2) A bit of the measured growth consisted of an increased rate of inventory investment, which was almost certainly not desired by firms and is likely to reverse later in the year. 3) As Martin Feldstein has pointed out, the QI growth number is defined as the change for the quarter as a whole relative to QIV of 2007; within QI, the information currently available suggests that GDP fell from January to February to March.