The Economy Is Definitely In Recession

The common layman’s definition of recession is two consecutive quarters of negative real GDP growth, meaning 6 months in which the economy contracts. But, the National Bureau of Economic Research (NBER) uses the collective wisdom of its trusted economists on the Business Cycle Dating Committee to make a determination based on a number of factors.

According to Harvard’s Martin Feldstein, who is on the committee, the Committee looks at monthly data as opposed to quarterly data. So, the two quarters shorthand is not really the right moniker. Broadly speaking, the most important attributes to look at are Employment, Production, Income and Sales. Feldstein says Employment is the most important factor

So what does that mean for us now? Well, the private sector has lost jobs for three months running now (Dec 2007-Feb 2008). And Employment is a lagging indicator to boot. To my mind, this means that we entered recession in December or January. What’s more, the dubious Birth-Death model that the Bureau of Labor Statistics uses to determine Non-Farm Payrolls shows huge net job additions in the most recent months from small businesses being created. This is rather unlikely given the state of the economy and these numbers are very likely to be revised downward next year when the first major revisions are done.

We all know that income growth is non-existent and according to the ISM surveys, both the Manufacturing and the Service sector are in recession. Finally, according to a number of retailers, sales are definitely down. So, the long and short of all of this is that we are definitely in recession. And the downturn has just begun. The question is: how long and how deep?

About 

Edward Harrison is the founder of Credit Writedowns and a former career diplomat, investment banker and technology executive with over twenty years of business experience. He is also a regular economic and financial commentator on BBC World News, CNBC Television, Business News Network, CBC, Fox Television and RT Television. He speaks six languages and reads another five, skills he uses to provide a more global perspective. Edward holds an MBA in Finance from Columbia University and a BA in Economics from Dartmouth College. Edward also writes a premium financial newsletter. Sign up here for a free trial.