Over the weekend I got together with my pal the cabbie. 40 years ago he was a campus radical at the university that I attended and I was acquainted with him back in the day when he was leading student strikes. We’ve renewed our acquaintance since then under circumstances I might go into some other time. Now he’s a cabbie and most of his business is with regular customers in the northern suburbs whom he drives back and forth to O’Hare.
He’s a bright, well-informed, well-read guy who sees life from a somewhat different vantage point than most from the driver’s seat of his cab.
This weekend we talked politics as we usually do when we get together. He’s one of the few who enjoy it and with whom I feel comfortable talking politics. Our conversation turned to the economy and he said that whatever you hear on the nightly news he certainly isn’t seeing any signs of recession and his customers don’t see them, either. I responded that I suspect that things look a lot worse in the places where most of the opinion makers live and work, New York and Los Angeles, and what they’re seeing and talking about with their confreres is probably being given excessive attention.
James Pethokoukis wonders about recession, too:
Out: Recession. In: Expansion. That’s my quick take on today’s first-quarter gross domestic product number, which showed that the economy grew 0.6 percent in the first quarter. Now that’s not a robust number by any means, but it’s not so bad given all the worry out there that the economy is headed off a cliff. Before you declare a recession, as many economic pundits have, shouldn’t the economy, well, actually recess a bit—if only for a quarter?
Remember, the shorthand rule for declaring a recession is back-to-back quarters of negative growth. The semiofficial recession judge, the National Bureau of Economic Research, has a more complex formula, but I am not sure it has ever declared a recession when the economy never actually shrank. And consider this: The Intrade online betting market now says there is a meager 25 percent chance of a recession—using the negative-back-to-back-quarters definition—in 2008.
I can’t help but wonder if we’re not going to see a highly localized recession, depression, even, in some areas, with those areas that have been most dependent on the real estate market suffering the most.
Update
Barry Ritholtz looks at the numbers and arrives at the conclusion that the economy is going through a contraction.
Hence, if we follow what the people who actually determine what is and isn’t a recession [ed. the NBER] say about the matter, and not just limit our analysis to GDP, then its pretty clear we are now experiencing an economic contraction.
Pardon my ignorance. Are contractions and recessions the same thing?
Update 2
My goodness. I was pretty busy yesterday and somehow missed this. The Federal Reserve has cut the Fed funds rate to 2%:
The Federal Open Market Committee decided today to lower its target for the federal funds rate 25 basis points to 2 percent.
Recent information indicates that economic activity remains weak. Household and business spending has been subdued and labor markets have softened further. Financial markets remain under considerable stress, and tight credit conditions and the deepening housing contraction are likely to weigh on economic growth over the next few quarters.
Contractions are a neccessary component of a recession using the rule of thumb 2 quarters of negative GDP growth but a recession is not a neccessary component of a contraction — you can have a single quarter of decline.
Now the more interesting question is that there are significant recession or at least sideways movement warnings — real spending, per capita spending, labor market problems, inventory build-up etc… does half a point on either side of 0 matter politically? I don’t think so.