WILL the U.S. be in a recession in 2008?
Don’t know. But a good case can be made that the economy is in a recession right now, despite some statistics coming from Washington that are as puzzling as they are questionable.
The debate over whether the U.S. economy will slow is a little like arguing about which team is going to win the 2007 World Series – the results are already in and the issue is moot.
The economy has probably been slowing for 18 months.
The only real question is whether the U.S. will slip into a recession – or, as they euphemize on Wall Street – experience “negative growth.”
Consumers are usually the best judges of the economic pulse since inflation, wages and outlook are something that they live with every day.
Still, the National Bureau of Economic Research, a private non-partisan organization, is the group in charge of officially declaring a downturn.
And usually the bureau doesn’t make a recession call until long after the economy has slipped and is on the way back. So the issue of recession or not isn’t going to be settled easily.
One recent poll found that 46 percent of American think we are currently in a recession.
Another said that “only” 40 percent of the people contacted felt a recession was “very” or “fairly” likely next year.
Current economic statistics aren’t giving people much to cheer about.
Corporate profits are barely expanding after years of double-digit growth. And companies are starting to lay people off in greater numbers.
Sales of new and used homes are very slow, causing an increase in foreclosures and pain for financial institutions and investors that speculated in real estate.
Prices of homes that did sell dropped the most in four decades, leading to a phenomenon that I’ll call the “poverty effect.” (That’s the opposite of the wealth effect that folks felt when their homes were growing steadily in value and they could borrow against the supposed appreciated value without misgivings.)
Without question – the economy is in trouble.
But there actually is one statistic that flies in the face of all this and it’s called the gross domestic product report, which is supposed to measure the nation’s output of goods and services.
Last Thursday the government’s Bureau of Economic Analysis reported that the GDP expanded by an astounding 4.9 percent annual rate in the third quarter.
That was on top of a very healthy 3.8 percent expansion in the second quarter.
Given those numbers you’d think that the economy was still expanding nicely.
You’d also have to conclude that all the bankers, consumers, businessmen and government officials expressing concern about the economy are nuts.
Over the past few years I’ve explained repeatedly in this column how both the employment and inflation numbers released by the government are tweaked to look better than they really are.
Today you’d have a difficult time finding anyone who believes either of those government statistics are accurate.
The GDP figure is getting like that.
For one thing, you have to understand what “4.9 percent annualized growth” really represents. It means that growth in the months of July, August and September was 1.225 percent.
If growth continued at that pace for all four quarters (1.225 x 4 quarters) you’d have an annual expansion of 4.9 percent.
That sort of growth isn’t likely to continue. Even in the face of such a great number, Wall Street firms like Credit Suisse were reducing their annualized growth rate for the fourth quarter to 1.7 percent.
As complicated as all that might sound, it’s actually worse.
First, those growth figures are mostly based on estimates.
Plus, GDP growth can be made to look better by re ducing infla tion.
In the third quarter report last week, for instance, something called the im plicit price defla tor – a measure of inflation – was calculated to have gone up just 0.9 percent.
That’s a sharp drop from inflation of 2.6 percent recorded in the second quarter.
And the third quarter deflator isn’t nearly as high as the inflation being recorded by the consumer price index, which itself usually underestimates price increases through the use of zany theories. (See all my past stories for that one.)
Had the GDP deflator for the third quarter stayed at the 2.6 percent level recorded earlier this year, then the annualized GDP growth reported last week would have been only 3.2 percent – or just 0.8 percent for that specific quarter.
Take out a few other inflation tricks like geometric weighting (people will switch products when prices rise) and hedonics (price rises get erased by quality improvements measured arbitrarily) and the economy looks as bad as everyone thinks it is.
Recession in 2008? We might have a recession now. john.crudele@nypost.com