Yes, Virginia, it's a recession

Posted by: Michael Mandel on July 31

I’ve steadily maintained that the economic data overstated the strength of the economy, and today we had the first confirmation. The BEA issued its revision of the past three years of GDP statistics, and guess what? The fourth quarter of 2007 was revised down to negative growth (-0.2% from the previous 0.6%).

In my view, this process of downward revision of the stats for 2007 and 2008 will continue over the next several years. It takes that long for all the source data to catch up (for example, tax return data for 2008 is not available until mid 2009 or even later). By the time that the data revisions are done, it will be clear that GDP growth in the first half of 2008 was negative, despite what the stats say now.

In other words, I believe that the statistics will eventually show that we are in a recession now, no matter what the official data says now.

On the one hand, this is part of the BEA’s normal process of better and better estimates over time. We wouldn’t want them to wait until they had all the data in, which takes years.

On the other hand, most people—and most journalists—take the economic statistics as fact, and report them that way. In fact, they are approximations, estimates, and in some cases educated guesses.Much better than nothing—but not reality.

It’s time to beat the drums again for more funding for economic statistics…especially ones that accelerate the process of revision.

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Reader Comments

James of Seattle

July 31, 2008 04:04 PM

The Bush administration makes everything political, including the economy, The Bushies controlled the numbers so the
can say the recession didn't start with
them. But it did. And they are responsible for the lack of government regulation in housing that started this
recession as well as spending on the war that was not needed, and the record deficit that is caused by his tax cut for the rich. We need to beat the deceitful republicans not the drums.

Toad

July 31, 2008 04:04 PM

Good move Michael. Instead of just admitting you're wrong, change the facts to support your mistakes. "In my view..." you're wrong!

Economist

July 31, 2008 04:13 PM

What an idiot, probably got an orgasm finally!

C. Marcus Parr

July 31, 2008 04:19 PM

The fact is, people (the government calls us "consumers") have known all along that we're in a recession, and a deep one at that. They see it in a paycheck that barely makes it through the month; they see it in a collapsing real estate market, a financial crisis (or debt crisis), and skyrocketing inflation.

It's the government that's in denial. It's the government that reports a CPI that subtracts so-called volatile commodities such as the cost of gas and groceries. Ask the average person...I mean, consumer if inflation feels to be around 2.5 percent. We all know, it's two to three times this figure.

I'm all for improving economic statistics coming out of our government, but I'll be damned if I'll support the idea of "more funding" to accelerate the process of revision.

Stephen

July 31, 2008 04:27 PM

In January 2008, I remember a conversation with an Economics professor who was sure that this would happen.

d_st

July 31, 2008 04:59 PM

It's too late for this past data now. The stock market already dropped. Now we have to do whatever is necessary for a recovery. Look toward the future. If Americans and the government don't spend and hire people, the recession will become a depression. It's better to do some spending now for the economy to stabilize then cut back little by little later when the economy is growing again. We've been in a recession before and that was the way we got out of it.

pushmedia1

July 31, 2008 05:01 PM

Oh, really? Because I think the numbers will be revised up.

Kartik

July 31, 2008 05:25 PM

The recession began in December or January. It may end by November, meaning we are near the end now. It will have been the typical 10-month recession.

Unfortunately, Obama will take full credit for 'ending' the recession, even though he had nothing to do with ending it.

trategery

July 31, 2008 05:30 PM

For the average person, the 2001 recession never really ended. Heavy outsourcing lead to a jobless "recovery" in 2003. Many jobs were permanently lost. The housing bubble began, which looked good on paper but had no fundamentals to back it. Declining real wages, lack of job security, skyrocketing food, fuel, healthcare and housing costs are everyday facts for most of us. Congress looks the other way when companies offer outrageous CEO compensation, hire illegal immigrants, slash jobs and benefits, weasel out of their pension obligations, fire employees suspected of union activities, fix prices for their customers, damage the environment, contest their tax bill and ask for corporate welfare; all while reporting record profits over the same period. The companies that fail still give their CEOs a golden parachute, and the government bails them out; and even keeps the management that caused the company to fail! Until businesses are forced to operate within the law and until wage inequality is addressed, the US will remain in a deep recession.

Holly Garfield

July 31, 2008 06:00 PM

MSNBC reported a couple of days ago that otuside of financials the S&P 500 growth is UP 10% year over year. There are many more 2nd quarter earnings beating (albeit pessimistic) expectations than misses. House foreclosure sales are finally increasing month over month. Consumer confidence is up, oil prices are down from their highs. It sure ain't great, but we are slowly getting ahead, and in July/August, too.

Joe Cushing

July 31, 2008 06:35 PM

We all have something we'd like the government to spend more money on. If we all got it, we would all be broke.

skizmo

July 31, 2008 06:58 PM

Although your article tells the truth, it is as much as true as the numbers the GOP giving you.

Patrick

July 31, 2008 07:33 PM

Michael -

You mentioned a need to better our economic statistics. I think an article about how some of these statistics are derived would be insightful. Do you know of any information sources where I can learn how the BEA collects data... or the Fed?

Jim in Atlanta

July 31, 2008 07:48 PM

The only ones that don't seem to know are in Congress and the White House. Could you imagine if Obama was in office and had raised the taxes? We would not have to say "So how is that working out!"

Ken

July 31, 2008 07:58 PM

First, Clinton created the HUD housing program which created the loan programs which are now defunct. Second, Bush hasn't done anything to boost the economy. Bush tried to go to War, which typically grows our Economy, but it has backfired for the first time in history. Why did it backfire? Easy, our Corporations have sent manufacturing to Third World Countries, which has helped them grow and us fail. Folks it is time for our Business Leaders to realize they have a played an absolutely huge part in all of this and bring America back to America. It matters not who wins the next Presidency, if our Business Leaders choose to help themselves and nobody else.

Frederick Alfredo

July 31, 2008 08:32 PM

Yup, this happens all the time. Remember the dotcom bubble? They admitted that we were on a recession AFTER we are already out.

I guess, this current one was too slow to end, that the revision caught up with reality.

Holly Garfield

July 31, 2008 09:03 PM

MSNBC reported a couple of days ago that otuside of financials the S&P 500 growth is UP 10% year over year. There are many more 2nd quarter earnings beating (albeit pessimistic) expectations than misses. House foreclosure sales are finally increasing month over month. Consumer confidence is up, oil prices are down from their highs. It sure ain't great, but we are slowly getting ahead, and in July/August, too.

nrollo

July 31, 2008 09:11 PM

Economist ... you are a pig.

Contrarian

July 31, 2008 09:15 PM

I'm all for changing technical definitions. If a recession no longer requires 2 consecutive Qs of negative growth, how about redefining 1' as 10" or pi as "roughly 3.2" -- as long as it corresponds to our gut feeling.

Actually, the Bush Administration has probably postponed a the beginning of a technical recession until Q2 or Q3 2009: Good commentary right here:

http://www.todaysfinancialnews.com/videos/?channelID=1&showID=589

an optimist...

July 31, 2008 09:15 PM

why does everybody have to play the blame game? i'm sick of people blaming bush for all the problems in this country... i'm sick of people blaming democrats for not fixing enough... i'm sick of all the blaming that's going on... just suck it up people and make something good happen in your own life... treat people right... be honest... and you will be blessed for it... stop blaming others and take responsibility for what you CAN control...

T

July 31, 2008 09:29 PM

Government stats are a joke and have been for a long time. Anyone who believes that inflation is a mere 1 or 2% does not live in reality. The Bushies have done more than their fair share of manipulating the data. As have many others.

booga

July 31, 2008 09:30 PM

James of Seattle, I don't like Bush either, but he did not lie about the GDP....It is always revised afterwards. It's always wrong in hindsight once all the proper data comes in and we can make proper revisions.

Mock Paradigm

July 31, 2008 10:21 PM

Does it matter whether or not the technical definition of a recession has been met by the statistics? Life sucks worse now for the average person than it has in a long time. Even folks with the money it takes to fill up the tank completely are saving even less than they did before. Do we really need to have this debate anymore?

Rycoka

July 31, 2008 10:23 PM

Is it possible to create a graph that compares initial figures to corrected figures? It might give an interesting view of the trend. One possible theory of what is happening at the moment is that we are in a major deflationary recession, with most of the money destruction happening in the credit and derivatives area. This is flowing through initially to the equities area and will inevitably flow through to commodities, killing off inflation concerns. The question under this theory is where is the momentum? Is the money destruction in the credit / derivative area going to continue into the "real" economy and hurt people badly, or is the destruction going to largely stop there - leaving US creditors poorer but the majority of people not too badly off?

The Mind

July 31, 2008 11:03 PM

Geese, what is wrong with you all. I'm not one to talk about conspiracy theories, but you all talk about an economy as if it were the governing force of life. There was a time when people didn't worry about paying rent's or car payments. Little by little the GOVERNMENT, that is supposed to be for the PEOPLE and by the PEOPLE has turned into a meothod of control and opression. Don't any of you realize that we have become slaves to a monetary system that in reality has no value other than the value we say it has. We have a boot on our necks! That's what the economy is. The divine will take what's his, and this economy will fall. Never in the history of man has an economy lasted, and it's because it's not the natural way of life.

Someone

July 31, 2008 11:34 PM

Dumbya didn't start the recession. He may have made it worse, but he didn't start it. The people to blame are the loan sharks who didn't really know what they were doing when they set about bilking poor people out of their money - only to find they didn't have enough for them to make a profit off of it. Those sharks, in turn, helped push housing prices up to unrealistic levels. When the bubble burst, as was inevitable, those same sharks got their comeuppance. As for gas prices, that's China and India's fault, since they held prices down in their own territory so their folks could hog more of the gas.

Mike Mandel

August 1, 2008 08:22 AM

The people at the government statistical agencies are very competent and nonpolitical. In fact, that's part of the problem...even if their numbers don't seem to reflect the economic realities, they have to consistently follow their procedures for collecting and processing data, in order to guard themselves against political pressure, or the charge that they are skewing the data.

Mike Mandel

August 1, 2008 08:24 AM

The technical definition of recession was *never* two quarters of negative GDP. The definition used by the NBER, which makes the call, is a broad and sustained downturn across the economy. I'd say that this qualifies already.

Schagrins

August 1, 2008 11:04 AM

For those with an interest in how these numbers are manipulated, John Williams' Shadow Stats offers a series of free "Primers on Government Economic Reports".

http://www.shadowstats.com/

Dominic

August 1, 2008 06:55 PM

Michael

You said: "The people at the government statistical agencies are very competent and nonpolitical. In fact, that's part of the problem..."

Are you really sure about that?? Just Google: bea, statistics, political, manipulation.
You may be surprised by the results....

Viking

August 2, 2008 01:17 PM

I agree with Mike Mandel that we are already in a recession and it seems to be a surprise only to the fat cats living inside the beltway of Washington D.C.The question is how do we get out of it?We start by announcing to the world that we will withdraw out troops from foreign bases and bring them home gradually over the next 5 years.This will actually make us much safer,because the reason foreigners want to attack us is that we are over there meddling in their internal affairs.At the same time we announce a massive domestic investment program in infrastructure,alternative energy programs and domestic oil and gas exploration with the aim of making us energy selfsufficient within 10 years.The money saved on the military will be used for these domestic programs creating millions of new jobs here at home.In addition we start a thorough review of all the trade relationships we have with other countries and if we find that some of them are not benefiting our economy we either re-negotiate them or eliminate them.These steps,coupled with a sound dollar policy and a small government,free market approact,will get us back to a healthy growing economy.Do we have the leadership to get us from here to there?Go Ron Paul!!

Joe

August 3, 2008 02:02 AM

Viking,

If we create millions of new jobs, who will do them? Who will pay for them?

Viking

August 3, 2008 04:47 PM

Joe,the people who are currently unemployed plus the military personel laid off,as we downsize the military,will get the jobs.We can cut the military budget by half,saving approximately $250 billion per year to fund these investments.We would still have by far the largest military budget in the world more than enough to secure our homeland.Once we are well on our way towards energy independence we can allow the Middle East to sort out their own problems,as we are no longer dependant on their oil.

Mike Mandel

August 3, 2008 11:10 PM

Dominic,

You know that I agree that there are lots of problems with the government statistics. However, I see no signs of political manipulation of the core economic statistics coming out of BEA, BLS, and the Census Bureau. The economists there are nonpolitical dedicated professionals

The place where the political manipulation comes in is at the funding level in Congress, which decides what statistics it is willing to fund and which ones it isn't. In addition, businesses resist any attempt to impose more data-gathering requirements on them.

Joe Cushing

August 3, 2008 11:44 PM

Viking,

We don't really have that many people who are unemployed considering this is the depths of a recession. When the economy turns back around, most of those will be back to work anyway. My point is, if you create new jobs to get what you already have, power for example, the price of it will go up. The people will have to pay for it.

Also, how many solders are engineers or scientists?

Dominic

August 4, 2008 11:57 AM

Michael

I have no doubt that the technical number crunchers at these institutions are dedicated professionals with the highest integrity.
However I'm not so sure about people at the higher levels of management where political pressure may occur.
The technicians, after all, work within the framework and directives given to them, if these are somewhat "massaged" the final numbers are compromised in the end.
Again, if you quickly google: bea, statistics, political, manipulation (or a similar combination) you will find some interesting read.
At some point there was a GAO investigation about political interference and integrity of federal statistics

http://findarticles.com/p/articles/mi_m1094/is_n3_v28/ai_14322993/pg_1?tag=artBody;col1


Viking

August 4, 2008 12:52 PM

Joe,you said,if we create new jobs for what we already have,the price will go up.We don't have enough home grown energy,hence the need for the investments.As it is now we in effect pay double for the energy from the Middle East.First we pay for the oil which are dollars leaving the country.Second we have to bolster our military to protect the oilfields over there,which our presence there enrages them,thus the need for billions in additional military and homeland security spending,etc,etc.

Jim D

August 4, 2008 01:23 PM

"even if their numbers don't seem to reflect the economic realities, they have to consistently follow their procedures for collecting and processing data, in order to guard themselves against political pressure, or the charge that they are skewing the data."

and

"However, I see no signs of political manipulation of the core economic statistics coming out of BEA, BLS, and the Census Bureau. The economists there are nonpolitical dedicated professionals"

Well, you're certainly right that they're non-political, and that they're very proud of their jobs.

But policies have been put in place to goose the numbers under both Democratic and Republican administrations.

For example - a "birth/death" model that adds jobs in construction when it's painfully obvious that jobs there have been vaporized. Or Owners Equivalent Rent, which ignored the biggest asset inflation in the history of our country.

Given that *every* *single* *change* that they've made to how they calculate these numbers in the last 30 years have resulted in "better" numbers, I think that the weight of evidence is on the numbers being manipulated.

Unless, of course, you can cite counter points. If the way the numbers are calculated systematically blows sunshine, then the burden of proof that these numbers are not manipulated belongs to the people who claim that they are not, rather than those who claim that they are.

So, if you want us to believe that these numbers aren't manipulated to produce better results - prove it. Explain why inflation is being undercounted with OER (and soon, why deflation is being undercounted with OER), and explain why the birth/death model always seems to add people to the employed ranks, even when an obvious decline is in progress (and the "death" part of birth/death should be taking over).

Otherwise, we're not buying it.

Unemployment is HIGH, inflation is HIGH, and the official numbers don't show that - because of how they choose to count unemployment and inflation.

For those who are very interested in this subject, I recommend the Econobrowser blog. While I'm not buying what they're selling, you can at least get a feel for why the numbers are the way they are.

Dominic

August 5, 2008 12:19 AM


Jim D

I could not agree more.
Also check www.shadowstats.com
Extremely interesting read.

Brandon W

August 11, 2008 08:36 AM

I'd like to bring a different thought to this debate about the reliability of stats. I think most who read this blog regularly know that I believe the recent stats to be terribly manipulated. However...

We're sort of arguing about what shade of green the grass is. The BLS says inflation is 4.9%... and then we hear everyone talk about how "that's somewhat high but not really a problem." They compare it to historical numbers. For example, inflation in 1981 was around 12.8%. Well, heck, things were BAD in 1981, so if we were at 12.8% it would be a bad situation - but we're not, it's 4.9%, the government says.

It's comparing apples to oranges. The fact is, if you apply the same formula from 1981 to today's data, the inflation rate would be 12.8%. The same as 1981 when things were "bad". Whether the number is 12.8 or 4.9 is almost irrelevant. What is important is to use the same method of formulating numbers before comparing them. And that's what we're not getting here. If today's inflation is 4.9% using formula X, then to compare it historically, you have to re-calculate the historical data using formula X. Then, when the re-calculated 1981 figure reads "4.9", and we know that to be a bad situation, we can look at our current "4.9" and go... "oh, hm, something's amiss."

But for now, we're not even talking about the same numbers. From my point of view, the formulas used up until the early 1980s were practical and gave a real sense of how things "on the ground" were. Today's formula X (and the same applies to unemployment) may look all impressive and pretty and make economists feel smart, but it's so much theoretical, impractical, useless trash.

At the very least, quit telling the citizenry of the United States that the numbers they're reporting are comparable in any way to historical numbers.

Brandon W

August 14, 2008 08:57 PM

FYI... Inflation, calculated the way they did it in 1980, is now about what it was in 1980: 13.4%

Marcy

September 23, 2008 09:01 AM

I would love to see this article updated. I've been hearing the most ludicrous "arguments" lately from persons who still claim that the only measure of recession is two quarters of declining GDP, even now - in the face of the implosion and destruction of the 5 major investment houses, nonetheless. And that from a self-proclaimed "economist with a degree." I honestly cannot fathom the degree of blindness to fact, that takes. By any method you care to factor, we the consumers are taking it hard.

Artemis34

November 2, 2008 04:06 PM

Kudos to Brandon W! Let's compare apples to apples. I just saw a story on CNNMoney.com [ http://money.cnn.com/galleries/2008/news/0810/gallery.five_measures/2.html ] about how bad things are, but they are comparing apples and oranges. I know there have been many changes as to how unemployment is calculated, for example, but they aren't addressing those.
Keep up the great comments Brandon W! At least we're getting some rational journalism in the blogs!
And thank you Business Week for creating this forum and for not editing out facts.

Thank you for your interest. This blog is no longer active.

 

About

Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

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