Recessions are only natural
July 12, 2001 12:00 AM ET
by Thomas Coyle
upside.com
NEW YORK -- Barron's Dictionary of Business Terms says the word "recession" refers to a "downturn in economic activity, defined by many economists as at least two consecutive quarters of decline in a country's gross domestic product."
Hard-line etymologists
The glossary attached to Yahoo's finance website says pretty much the same thing, though it's also kind enough to remind readers that recessions are only temporary.
For some reason the lexicographers of the American Heritage Dictionary take a more stringent line, defining "recession" as "an extended decline in general business activity, typically three consecutive quarters of falling real gross domestic product."
Folksy as hell
And of course others have culled out their own definitions of the term.
"It's a recession when your neighbor loses his job; it's a depression when you lose yours," was a stump quip of Harry Truman -- one that Ronald Reagan borrowed, and modified slightly, for use in his successful run for the White House in 1980.
Oddly enough though, one of the loosest definitions of the word comes from the National Bureau of Economic Research, an economics think tank that assigns beginning and end dates to recessions -- though only after the fact.
To NBER a recession is simply "a period of declining output and employment."
For the Economic Cycle Research Institute, one of whose roles is to forecast economic developments by means of its Weekly Leading Index, a recession is, well, pretty much what's going on in the U.S. right now.
You're looking at it
"We're seeing a classic sequence," said Lakshman Achuthan, ECRI's managing director.
"The leading indicators moved to a point where it would have been unprecedented to avoid a recession by March," he said. "By May, the coincident indicators that define the economy right outside your window started moving in ways only seen during a recession."
With the exception of roughly stable personal income and higher equity prices in the second quarter, ECRI's leading indicators have been in steady and pronounced decline this year.
Industrial production is down, manufacturing and trades sales have shrunk, payrolls have withered and unemployment is up -- and in every case by increments seen only in times of recession.
Just say yes
Though many in the stock market still shun the R-word, Greg Mitchell, president of D.B. Root and Co., an investment advisory, thinks it's time to start staring facts in the face.
"I would say, 'Yes, we're in a recession,'" he told UpsideToday. "And that's due to the fact that consumer spending is down."
In other words the other shoe has dropped: the waning production that led to layoffs is beginning to make the spendthrift U.S. consumer think twice about shopping till he drops.
"Consumers are starting to change their habits," said Mitchell. "Having blown so much in the late '90s, we've run out of credit."
No pain, no gain
But, Mitchell added, painful as they are to many, recessions serve to keep the economy on track -- not least by forcing consumers and businesses to use money more efficiently by making inefficiencies costly.
"The '80s set up the '90s," Mitchell said, referring to the U.S. economy's painful transition from its reliance on profit-squeezed rust-belt industries to the IT-driven industries that came roaring to the fore in the second half of the last decade.
"That period forced companies to come up with good business plans," said Mitchell. "But by the late '90s it had turned back to a more fly-by-night scenario."
Just so
In other words, the economy got fat, sloppy and careless -- and needed to go on a diet and get an attitude adjustment.
Setting aside the question of whether recessions are good or bad in the long run, ECRI's Achuthan views them simply as inevitable.
"It means we're experiencing a normal free-market economy, where you have choices as to what you buy and what you sell and how you employ your money," he said.
The end is not nigh
"One of the key characteristics of cycles is that they turn," Achuthan added. "We've experienced the downturn -- we're in it right now -- and one thing we can bet on is that there will be an upturn at some point in the future."
In the meantime, Achuthan said, there's little to be gained from denying reality.
"Just observing that we're in a recession now doesn't mean that the world has come to an end." |
