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A Positive GDP Recession?

Monday, July 28, 2008 | 09:00 AM

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.

Or...

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.

Or...

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.

Or...

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 . . .

Previously:
Recessions Often Begin With Positive GDP Data (May 2008)
http://bigpicture.typepad.com/comments/2008/05/positive-gdp-re.html

Source:
Economists Weigh Possibility of a Recession Amid Economic Growth
SUDEEP REDDY
WSJ July 28, 2008
http://online.wsj.com/article/SB121720283536488455.html