DJ Recession Yea Or Nea? The Debate May Never Be Resolved
By Michael S. Derby
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Whether the slowdown currently dominating the economy
is in fact a recession is a question that may ultimately never be answered.
That's because even as the economy slows mightily from its blistering pace
of only a year ago, it still stands a good chance of skirting the definition
of a recession employed by the National Bureau of Economic Research, the
nation's official economic scorekeeper.
The organization, which has certified two such contractions in the last two
decades, has so far said that the U.S. economy, despite widespread patches
of weakness, has remained buoyant.
That view, however, stands in contrast with a significant number of
economists who, while not a majority, believe the slowdown has been strong
enough to merit the recession tag, and that's it's only a matter of time
before the NBER says so.
The NBER defines a recession as "a significant decline" in activity across
the economy "lasting more than a few months." That definition is a bit more
fluid than economists' conventional shorthand for a recession that says two
consecutive quarters of economic contraction a recession makes.
The NBER has so far refrained from affixing the "R" word to the economy,
although a note published June 4 on its web site did edge a little closer.
Robert E. Hall, chairman Of NBER's business cycle dating committee, said
"the data normally considered by the committee indicate the possibility that
a recession began recently." But he went on to say that "the economy has not
declined enough to merit a meeting of the committee or the determination of
a peak date" of activity that would signal the contraction.
Some economists, however, argue that the NBER need only to look to its own
current statistics to make the call.
"While every recession is different, it appears that the preponderance of
evidence points to a peak in economic activity that occurred in December or
January," and that subsequent slide, along with its duration, meets the NBER
recession definition, Brian Wesbury, chief economist with Griffin, Kubik,
Stephens & Thompson, Inc., said in a research note.
Most measures of the economy hit highs either in December 2000 or January
2001, he said. The only laggard has been the comparable strength of retail
sales, Wesbury argued.
He contrasted the current situation with the recession of the early 1990s.
Then, industrial production, retail sales and imports saw peaks after what
was later deemed the official start of that contraction.
Living With Ambiguity
Just as the recession camp has its boosters, plenty of economists believe
the economy has and is likely to skirt a full-blown contraction. And by the
most commonly used definition, it has so far dodged the bullet.
According to the government, during the fourth quarter of last year and the
first quarter of this year, when the slowdown took hold, the economy grew at
by a paltry 1.0% and 1.3%, respectively. Most of the pain has been felt by
heavily-battered manufacturing and technology sectors. The service sector,
which accounts for the majority of the economy's output, has slowed but
remained relatively resilient.
The dichotomy in economists' positions, along with the NBER methodology, may
result in a never-settled dispute over what to call the period the economy
is currently going through.
Based on the gross domestic product measures, "compared to a year ago it is
a recession-like swing" in the magnitude of the slowdown, even as the data
have been able to hold to positive territory, said Carey Leahey, economist
at Deutsche Bank in New York.
But he added that GDP alone isn't the whole story. For example, the
employment market has not weakened enough to fit the NBER recession
criteria, and it's not certain that it will, Leahey said. So in that way,
the economy could end up fitting many economists' personal recession
definitions but not that of official scorekeeper, he said.
Dana Johnson, head of research with Banc One Capital Markets in Chicago,
said that in many ways, "it's a semantic question."
Still, it's an important one, and it could "absolutely happen" that a year
from now economists will still be disagreeing about what happened during the
first half of 2001, he said.
Johnson and other economists said while a somewhat unresolved situation is
rare, the gray area has happened before. The economy in the mid 1960s went
through a patch of slow growth, including a contraction in the second
quarter of 1967 that led to some say a recession occurred, although it never
got the certification from the NBER.
-Michael S. Derby, Dow Jones Newswires; 201-938-4192;
michael.derby@dowjones.com
(END) DOW JONES NEWS 06-13-01
08:57 AM
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