Recession or not? US economy likely to be in limbo

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    Oct 25, 2009 9:47 PM GMT
    Recession or not? US economy likely to be in limbo
    by Rob Lever Rob Lever
    Sun Oct 25, 12:34 am ET

    WASHINGTON (AFP) – The US economy is poised to show growth in the third quarter, rebounding from its worst slump in decades, but whether the recession is over is a more complex question.

    The first official estimate due Thursday on gross domestic product (GDP), or output of goods and services, is expected to show expansion of between 3.0 and 4.0 percent in the July-September period after four negative quarters in a row.

    Yet the economy may linger for months in a "no-man's land" in which GDP is expanding but no one is sure if the recession is "officially" ended, because of the way business cycles are defined in the United States.

    For decades, the US government and economic community have recognized a panel of academicians with the private National Bureau of Economic Research as the official arbiter of business cycles.

    The NBER panel does not use the definition employed in many countries of recession as two consecutive quarters of declining GDP.

    NBER says a recession is "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales."

    Moreover, the NBER generally waits months before its pronouncement, leaving the question of recession or not in limbo.

    Complicating the issue is the sharp rise in unemployment, which has hit a 26-year high of 9.8 percent, making it still feel like recession for many.

    "The average American doesn't think you have recovery until the unemployment rate comes down, and it won't come down until you have a sustained rate of 3.0 percent," says Cary Leahey, senior economist at Decision Economics, a research firm.

    "This is not really a meaningful recovery."

    Leahey expects the economy to show growth of roughly 3.9 percent in the third quarter, but sees a slowdown to around 2.0 percent in the fourth quarter as the expansion stalls.

    Moreover, analysts point out that much of the growth will be the result of businesses rebuilding inventories following sharp production cuts, and from government stimulus efforts that may not be sustained.

    Nariman Behravesh, chief economist at the research and consulting firm IHS Global Insight, said he believes the recession ended in June or July and that NBER should provide at least a preliminary pronouncement of the fact.

    "I'm sure the recession is over, the only question is the strength of the recovery," he said.

    "NBER could provide a preliminary reading, they could say, 'This is our best estimate,' instead of leaving everybody guessing."

    Behravesh said it may be as long as a year before NBER decides and that the state of uncertainty "is not helpful for businesses."

    Federal Reserve chairman Ben Bernanke said last month the recession is likely over "from a technical perspective" but that the economy will struggle due to difficult credit conditions and high unemployment.

    "It's still going to feel like a very weak economy for some time as many people will still find that their job security and their employment status is not what they wish it was," the Fed chief said.

    The NBER declared the current recession on December 1, 2008, a full year after the downturn began. That was made despite data showing modest growth in the fourth quarter of 2007 and second quarter of 2008.

    NBER declared an end to the 2001 recession only in July 2003, even though revised data showed there were not two consecutive negative quarters for GDP.

    Roger Farmer, chairman of the economics department at the University of California at Los Angeles, said he believes NBER will eventually declare the recession ended in May 2009.

    But Farmer said many Americans still will be feeling economic pain and that the NBER should consider other factors such as long-term unemployment.

    "I think the economy is fragile, and the recovery could easily fizzle out," he said.

    Even if the recession were declared over, "until the unemployment rate comes down, the US economy is going to be in trouble," he said.

    "Only when we start spending again, and confidence returns to the private economy will the recession be over."

  • bottomline

    Posts: 331

    Oct 25, 2009 10:13 PM GMT
    I think this recession brings to table an issue that could no longer be ignored. The US economy just cannot be as big as it was. It is never going to return to its peak again. The US economy will have to shrink to accommodate other developing countries. Its a simple 2+2=4. There is only one cake (the consumer) and everybody wants apiece of it and now there is more mouths to feed than ever. Resources are limited and competition is getting harder. It is only a matter of time before the world will need to be more balanced and the wealth better distributed and we need to come to terms with it.

    US has been exporting more and more of its agriculture and less manufacturing. Very similar to pattern of business policy that third world countries uphold. Cant be very good.

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    Oct 26, 2009 12:26 AM GMT
    bottomline saidI think this recession brings to table an issue that could no longer be ignored. The US economy just cannot be as big as it was. It is never going to return to its peak again. The US economy will have to shrink to accommodate other developing countries. Its a simple 2+2=4. There is only one cake (the consumer) and everybody wants apiece of it and now there is more mouths to feed than ever. Resources are limited and competition is getting harder. It is only a matter of time before the world will need to be more balanced and the wealth better distributed and we need to come to terms with it.

    US has been exporting more and more of its agriculture and less manufacturing. Very similar to pattern of business policy that third world countries uphold. Cant be very good.



    Sounds like you're describing mercantilism. The world economy isn't a monopoly game, where there is only a limited amount of money in the entire game.
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    Oct 26, 2009 12:38 AM GMT
    The US will become an oil exporting nation. Oil contracts are still donominated in US dollars, and the US certainly did not go to war in Iraq to liberate the Iraqi people. Its all economical. I dont think 1500 S&P was the PEAK of economic prosperity in the US. The balance of power has shifted but i think in time growth opportunities will arise.
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    Oct 26, 2009 2:02 AM GMT
    I personally think the recovery is weak and on shaky ground. We now are heading toward the holidays which is usually a good gage of whether or not the public is spending, if the holiday spending isn't up over last years its a sign the recovery will stay on shaky ground at least through the winter months. We desperately need regulation of the banks and Wallstreet if recovery is to last and the economy to stay stable. If regulating fails the banks and Wall street may lead us right back to a recession. We may be two more years trying to get back to anywhere near the Wall street volume of 3 years ago. I'd say hang on for another two years of a shaky recovery.