A Positive GDP Recession?

Interesting WSJ article this morn about how the recession is likely to be called and dated:

Maybe, maybe not. The U.S. economy is expanding. It is likely to show a growth rate of more than 2% at an annual rate when the government gives its first estimate of the second-quarter performance Thursday.

The continued growth raises a key question: Could this be the first U.S. recession without a decline in economic output?

The nation’s gross domestic product — its total output of goods and services — expanded at a 1% pace in the first quarter, reflecting a rise in exports because of the declining dollar. The growth defied predictions from some economists that a contraction would begin during the period.

The figures indicate a recession under the most common definition — two straight quarters of declining GDP — didn’t occur in the first half of this year, though the government could revise the data later.

But the nonprofit National Bureau of Economic Research, which decides whether the U.S. has slipped into a recession, looks for "a significant decline in economic activity spread across the economy, lasting more than a few months."

Those gauges include GDP, incomes, employment, industrial output and retail and manufacturing sales, says the NBER’s seven-member Business Cycle Dating Committee, which is composed mostly of economists from academic institutions. The panel can declare a recession, even if GDP remains positive, based on other measures.

Most of those gauges have been especially weak in recent months and some are in outright decline. The job market, for instance, has been contracting all year and the government on Friday is expected to report that payrolls dropped in July, the seventh consecutive monthly decline.

What are the various potential outcomes for the NBER dating committee?

1) Call the latest period a recession, even if GDP grew, citing the decline in employment and the other key gauges.


2) It could do nothing — not declare a recession — and let the last year go down in history as a slowdown featuring a bone-chilling financial crisis.


3) If GDP declines late this year or early next year, the committee could backdate the start of the recession to January, when employment started declining. That would make the downturn the longest since the 1981-82 recession. 


4) The panel also could declare a shorter recession, even without a negative GDP quarter.

In three of the four possibilities above, the end result is a recession — that’s 75%, and I suspect that is just about right . . .


Recessions Often Begin With Positive GDP Data (May 2008)

Economists Weigh Possibility of a Recession Amid Economic Growth
WSJ July 28, 2008

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  1. jonst commented on Jul 28

    Or perhaps we can go with Kevin Phillips’ theory and say the entire process of govt statistics is bullshit from start to finish.


  2. John commented on Jul 28

    Don’t I remember reading a piece by you a couple of weeks ago pointing out that this:

    “The figures indicate a recession under the most common definition — two straight quarters of declining GDP — didn’t occur in the first half of this year, though the government could revise the data later.”

    Was NOT the correct definition of a recession. Quite apart from that one has become so suspicious of the data being issued by the govt these days. At the end of the day we’re back to the famous duck definition.

    BR: Its above, under “Previously”
    Recessions Often Begin With Positive GDP Data

  3. MeanGene commented on Jul 28

    How is declining purchasing power of the dollar calculated into the GDP numbers?
    If GDP increases 1%, but the dollar declines 2% in the same time frame, does it still count as growth even if everyone is worse off?

    I would like to see some “real” numbers, not the nominal numbers we get from the gov’t.

  4. Mike in NOLa commented on Jul 28

    An interesting stat, even more so as it comes from the cheerleaders:

    Worried Banks Sharply Reduce Business Loans

    I don’t think it’s only sudden conservatism by the banks, although there is that, but a lack of equity following writedowns that’s curtailing lending. To repeat the quote from Bernanke on a previous recession:

    “Bernanke and Lown (1991) use US state-level data on individual banks to argue that, although demand factors might have caused much of the observed slowdown in bank lending during the period, a shortage of equity capital limited banks’ ability to extend loans, particularly in the northeastern part of the country. Lower levels of bank capital seem to have been the result of an increase in loan defaults and write-offs.”

    BTW, although it’s off topic, a warning about Chinese markets until after the Oympics. Michael Pettis’ blog cited an article in from the FT about the government trying to avoid the embarrassment of a falling market and negative news during the Olympics:

    Pre-Olympic warnings to China’s fund managers

    You have to register to read the whole thing, but it’s free.

  5. Walker commented on Jul 28

    “How is declining purchasing power of the dollar calculated into the GDP numbers?”

    GDP has a built-in adjustment to handle price inflation. However, as Barry has pointed out several times, the number they are currently using is laughably small.

  6. JustinTheSkeptic commented on Jul 28

    Watch out after the election because everything is being skewed to passify the electorate. Bull-Shit numbers indeed!

  7. Aaron Krowne commented on Jul 28

    Why even engage in this debate given that we know how doctored the statistics are? It just lends credence to the manipulators.

    History will probably show we headed into recession when housing starts collapsed in 2006-2007. Employment peaking in 2007 sealed the deal.

  8. paul commented on Jul 28

    An old formula – probably by “definers” who are dead or have been discredited privately.
    There is no such thing – in True Economic Terms – as a formula that prevails” over economic reasoning. The absurdity of “Formula Economic Determiners” has been well defined in this past year – Since the Recession Started in August of 2007 (Who says? – My degree is as good as theirs – and my private success are, I am sure, have a better statistical average – and I am a nobody) why do we give authority to individuals in the drivel of public display – and call them Experts?”

    Barry – you are commenting and providing fuel to a knowledge you don’t respect – lets, as private citizens, who are willing to speak out – discredit these folks – and begin a new platform – of “what you see is what you have!”

    The greatest knowledge – has been professed by one of your favorite books “How we Know what isn’t So”

    Besides 10,000 + people who have committed fraud against others and taxpayers – who should be going to Jail – we need to public display “the Sayers” what they said and how wrong they were – and put them in the public courts bound and displayed – never to post publicly – that they were and are to be considered “false Prophets” and banned from all media for 10 years or their their death – the sooner!

  9. hal commented on Jul 28

    I will jump on the bs data issue and muse how bad gdp would be with real inflation data.

    if not for the price jump in food and energy we prob would be seeing neg gdp for 2 qtrs already

    neg growth–what an oxymoron.

  10. dss commented on Jul 28

    Government stats have been manipulated and massaged to the extent that now even a nasty turn down is not registering.

    Massive bank failures, the worst housing market since the depression, energy at record prices and we register this is as “growth” in the economy?

    Just like the employment numbers, all numbers put out by our “conservative” government are bullshit, designed to hide the weakness and collapse in our economy.

  11. Patrick commented on Jul 28

    I am increasingly finding articles like this to be a bit inane.

    GDP is directly impacted by what the rate of inflation is. Alter the CPI/etc to decrease inflation and you raise the GDP rate.

    A positive GDP recession? Uh, no. We’re pretty damn negative last I checked:

    What’s next? The pundits rehashing the “jobless recovery” crap? The experts claiming nearly a full year ago that the worst of the credit crisis was past? That house prices never go down? That the dollar is undervalued and the euro overvalued? That ethanol is fantastic? That the price of oil is being driven by evil speculators? That Saddam and Ossama are having a secret love child together? That The Insurgency is in it’s last throes?

    Am I the only one here that is insulted that such a supposed bastion of financial journalism is even bothering to write this crap, nevermind print it AND charge for it?

  12. WakeUpAmerica commented on Jul 28


    you certainly are not the only one feeling insulted and with the conviction that 1984 has been here and now for quite a long while already.

    If GDP was computed using a measure of inflation close to reality we’d find out that the USA has been in a recession long before the credit crisis exploded last year.

    Something has gone very wrong with the country when the powers that be can get such lies not only accepted by the public, but endorsed by technically proficient and ‘independent’ media.

  13. DL commented on Jul 28

    Once the election is out of the way, the NBER will (hopefully) try to be unbiased in its assessment.

    Given that inflation measures are based on models that are deliberately intended to understate the inflation rate, it stands to reason that “real” GDP is smaller, relative to “nominal” GDP, than the official government numbers suggest.

    What I find amazing is that in discussion after discussion, article after article, the economist(s) or journalist(s) involved simply accept as true the “real” GDP number that is put out by the government. It is very rare to even hear the nominal number being cited in a discussion of the economy, and rarer still to actually get a debate on the question of the assumptions underlying the determination of “real” versus “nominal” GDP. I find it very unsatisfying that economists on both sides of the aisle are such lemmings in this regard.

  14. DL commented on Jul 28

    There’s another point to be made here, apart from the issue of inflation

    GDP is calculated as follows:

    GDP = C + G + I + NX
    C = consumer spending
    G = Government spending
    I = Investment
    NX = net exports

    We’ve been seeing a lot of extra contribution from “G” lately, i.e., bailouts, rebates and other nonsense. One question is, what about next year? If you’re going to have a bad economy, the best time to do it is in the first year of a presidential term. I think we’re going to have one hell of a deficit next year. So we’re likely to see less “G” next year than this one.

  15. Michael Donnelly commented on Jul 28

    I’m calling this the Aunt Millie quarter…

    An 18 year old named John is walking thru the mall with several bags in tow. John has purchased $200 in merchandise, you the car dealer would like to sell John a car. Do you use his obvious ability to purchase as your fundamental credit check? That’s one option. The other is to ask him if he has a job or whether he just cashed his Christmas check from Aunt Millie.

    Our current 2nd quarter is full of shopping bags (mostly food and gas) but it will go down labeled the Uncle Sam and Aunt Millie quarter.

  16. Jetlag commented on Jul 28

    It’s all about unreported inflation.

    High nominal growth but real growth is negative…if inflation is correctly accounted for.

  17. Walter Antoniotti commented on Jul 28

    Given the hedonic adjustments made to inflation, inflation is understated, and GDP, total production are overstated, recessions are not possible, just depressions.

  18. joebek commented on Jul 28

    In the 80’s Willie Nelson held the first Farm Aid in 1985 and the phrase “rolling recession” entered the lexicon of political economy. It might be worthwhile thinking about the current financial crisis as just a one of the sector recessions that has characterized this decade as the nation tries to dig out from the disastrous economy of the nineties. (Has telecom really recovered yet?) It might just be that since this is hitting the media center (New York) the fear factor is amplified.

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