U.S. economy - recession or just a slowdown?
The prevailing notion today among most domestic economic and media observers is that the U.S. economy is in a recession — and most believe it will get worse before it gets better. But is that really the case?
Representing the prevailing view, Daniel Gross, writing in Slate, argues that Washington is attempting to paint the economic situation with a rose-colored brush. In his opinion, Fed Chairman Ben Bernanke and other Bush administration officials are ignoring the obvious and undeniable indicators that the U.S. economy has entered a deep recession:
In recent weeks, abundant evidence has pointed to a recession—a broad-based contraction of economic activity—from rising unemployment claims to the continued pain in housing. Wall Street economists, whose employers have been experiencing their own private recession since last summer, haven’t shrunk from using the R word. But in certain quarters of Washington, euphemism and understatement, verging on outright denial, are par for the course.
Gross goes on to argue that the U.S. economy cannot escape the “inevitable” trough of the business cycle. His evidence? Even Google — the economic juggernaut that has experienced unusually strong and sustained growth ever since its founding — is now facing a decline for the first time ever.
But this is not the only view. Nic Duquette argues that the economy is actually not as bad as many experts have been claiming. Duquette points out that the current combination of economic woes — a precipitous rise in energy prices and consumer goods, a sharp decline in the value of the U.S. dollar and real estate assets that have left Americans with vastly reduced purchasing power, and a severe crisis in the credit and financial markets — should be crippling the U.S. economy. But in fact, the actual effect these negative factors have had on the economy is — as of yet — surprisingly limited.
The revised GDP estimate released May 29 showed a small increase over a year ago, even after accounting for inflation. It could be that the worst of the economic downturn is yet to come, but if so the stock market doesn’t think so. The S&P 500 has declined 6.3% year-to-date, not as well as could be hoped but not bad at all by historical standards. The unemployment rate in April rose to 5.0%, higher than the 4.5% rate of April 2007, but well below the 6.3% rate hit in mid-2003 or the double-digit rates in many other countries.
Why is this the case? Why has the U.S. economy remained so stable since the early 1980s? Duquette lays out three possible explanations: luck, improved public policy, and technological advancements. While he credits the first two explanations with some impact, he believes technological progress with the strongest effect on moderating economic challenges in the past three decades.
First, Duquette argues that the combination of skyrocketing gas prices and ever-increasing American consumption has been offset by an economy that has grown even faster, and the despite urban sprawl and the SUV boom, American automobiles and lifestyles have become increasingly economical when it comes to fuel. His proof? Real GDP per gallon of gasoline consumed has doubled in the past 50 years.
Similarly, the implementation of new technology in the financial sector has allowed banks to manage risk in a way not possible before the relatively recent explosion of information technology.
Duquette admits that this technological progress also bears much of the blame for creating the current housing market collapse. “Exotic” and risky mortgages were “issued, resold, and manipulated based on models of repayment risk that turned out to be woefully inadequate.” However, he also believes the same technology “may also be keeping the situation from becoming much worse.”
Duquette concedes that the worst still may lie ahead for the U.S. economy — but that we are not in a “recession” just yet, and certainly not the “depression” that some have predicted.
So far, the American people aren’t buying Duquette’s argument. In March 2008, a Gallup poll showed that 76% of Americans believed the U.S. economy was in a recession, up from just 36% who felt that way in October 2007. That same poll found that nearly 60% of Americans believed it was at least “somewhat likely” that the U.S. would be in a full-fledged “economic depression” within two years.
An LA Times/Bloomberg poll taken in May found that 78% of respondents believed the U.S. was in a recession. Yet a Quinnipiac poll taken just one week later found that 64% of respondents felt that their family’s financial situation was “holding steady” and 12% felt they were “getting ahead.”
What explains the disparity? It could be any number of factors, but negative media coverage of the economy is the most likely explanation — while a majority of Americans might not feel that they personally are facing hard times in the current economy, they remain convinced that things are not going well on a national scale.
A majority of the public believes that we’re in a recession because the media has repeatedly told us that we are. In fact, if you look in the dictionary, there is a definition for recession. Public opinion isn’t a part of the definition.
Part of the on-going effort to talk down the economy to the benefit of the Democrats. And as Nick said there is a definition for recession… 2 consecutive quarters of declining economic activity. We have not had even one.
But that doesn’t stop the Post…
“What explains the disparity? It could be any number of factors, but negative media coverage of the economy is the most likely explanation —”
Journalistic honor and integrity have sunk so low, media mavens are telling their mothers they are piano players at a bawdy house.
Ben Benanke and George W. Bush, who know perfectly well how the economy stands, should be credited for trying to maintain an upbeat outlook. Their political enemies have done nothing to help, and attack them like a pack of hyenas.
The S&P 500 is down, and it’s measured in declining U.S. dollars, so we’re hurting, and the main cause is the ignorance, greed, and laziness of many U.S. citizens. Smarter and harder-working people from all over the world are showing us what education and entrepreneurship are all about.
As an investor and a survivor, I have to go with Toyota and Honda over GM and Ford. Sorry folks, but we have messed in our own nests for too long.
The platform epitomizes the present day media. I clicked on the Slate article dated 3/1. Who is Nic Duquette blogging for pajamas media, Nic being “a writer living in Ohio”
Mr Mayer, if he is going to write a throw against the wall article/questionnaire should at least talk to the only knowledgeble business writer at the Post Mr Nicklaus. Even Jim Gallagher on the editorial board should be considered.
We are going through a very difficult economic period whether it is eventually classified as a recession remains to be seen but my fellow commentators are correct the media is our own worst enemy.
jerele:
If you read the PM article, you’ll see that Mr. Duquette was citing Ben Bernanke, the Fed Chairman, when discussing analyses of U.S. historic economic stability. Bernanke’s hardly a lightweight when it comes to knowledge of economic issues.
From what I can tell, it looks like we are passing through the nadir a real estate pain right now. MLS listings (supply of real estate) are starting to top out and even drop right now throughout the United States. With supply stable and falling, prices should stabilize as well. Also, the fact that the US and Canada have a decent population growth rate means that prices simply can’t remain low for long. Check out http://www.listingsupply.com
fantasy land
Why is it that no one wants to discuss the value of the U.S. dollar? This is what the problem is in a nutshell.
Someone needs to be upfront about why the value of the U.S. dollar is going down in value so much, and, which is also affecting the entire world’s market place.
It is just a matter of time before you who are suffering from false security experience the groans and pains due to the U.S. fallen dollar value.
I would like to hear some serious discussion concerning about the U.S. fallen dollar value and the reasons behind it. Everyone seems to be at ease being kept in the dark, ignoring it and not being prepared for when the inevitable happens, and it will.
We are facing some extreme hard times. People need to stock up on can goods, dried beans etc., and communities and neighborhoods should begin to grow their own gardens and organize bartering situations with their neighbors, etc. The people of the U.S. will not be known as the nation of obese people, diets will change greatly.
We must seriously push for our government to require automobile manufacturers who sell cars in the U.S. to use technology that is available requiring little use for gasoline requiring them to produce plug in hybrids that get a min. of 60 miles per gallon of gasoline. This technology is already available. College engineering students are rigging up automobiles as plug in hybrids that get 100 miles per one gallon of gasoline.
A push must be made and new jobs can be created in the automobile mechanic field converting already existing automobiles into plug in hybrids.
Everyone should receive a tax credit to cover the cost of this conversion for his or her automobiles or a credit towards purchasing a new hybrid type automobile. It will cut back greatly our use of fuel in the form of gasoline.
We will be facing some devastating times ahead, and must begin being prepared for them.
Hopefully, people will also come to see and acknowledge that the times we are about to face is due to our actions being apart from God’s plans for so long. If people will turn to God for answers and follow His plans as He has laid out and not as man have decided they should be based on man’s confused, flawed and corrupted sick mind, then we will make it through these tough times ahead.
Great testing is ahead for those who claim to be Christians here in America, and extreme difficult times for others where God will be patiently waiting for these to cry out to Him seeking Him for help and some comfort. Everyone who assumes that they will be okay and will not suffer any kind of hardship due to our unstable economy is experiencing false security, no matter how much money you have stored away.