Is the US in recession? Tough call as GDP grows amid turmoil

July 29, 2008
House prices falling...
Financial markets struggling...
...but US economy is growing?
Is the US in recession? Tough call as GDP grows amid financial
turmoil

NEW YORK - COULD this be the first US recession without a decline in
economic output?

While house prices in America are tumbling, job losses growing and
financial markets struggling with their worst shock in decades, the
economy is expanding.

The Wall Street Journal in a report yesterday said economists are
weighing the possibility of a United States in recession while
enjoying economic growth.

The US economy is likely to show a growth rate of more than 2 per
cent when the government gives its first estimate of the second-
quarter performance on Thursday.

The country's gross domestic product (GDP) - its total output of
goods and services - expanded at a 1 per cent pace in the first three
months of this year, thanks to a rise in exports because of the
falling US dollar.

This means a recession under the most common definition - two
straight quarters of declining GDP - did not occur in the first half
of this year.

But the non-profit National Bureau of Economic Research (NBER), which
decides whether the US has slipped into a recession, uses a different
gauge. It 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, said the Journal.

Most of those gauges have been especially weak in recent months and
some are in outright decline, it said.

The job market, for instance, has been contracting all year and the
government is expected to report on Friday that payrolls dropped this
month, the seventh consecutive monthly decline.

Harvard University's Professor Martin Feldstein, president of the
NBER until this month, told the Journal the US has been 'sliding into
a recession' since January, when many monthly statistics peaked.

But a GDP decline is not necessary 'if there is enough other evidence
that the economy is contracting', he said.

Whatever the case, the NBER committee will not be making the call any
time soon. The 2001 recession went from March to November of that
year, but the committee did not declare the start of the slump until
November 2001 and did not call the end until 2003.

'We take our time,' Stanford University economist Robert Hall,
chairman of the committee, told the Journal. 'We like to get things
right.'