Business | Economy
Pocketbook well-being not keeping pace with US economic productivity gains
Many economists are saying it's a recession despite the GDP numbers and forecasting a difficult economic climate well into next year.
- Christian Science Monitor
- Published: 22:59 September 12, 2008
A gulf has opened up between the economy that Americans are experiencing and the one portrayed in the broadest measure of US production: the gross domestic product.
According to the GDP, US is growing - most recently at a 3.3 per cent annual pace in the second quarter.
Important indicators other than the GDP, though, are walking and quacking like a recession. Among them: eight straight months of job losses; declining industrial production; a housing market so weak the government was forced into a mortgage market bailout; automakers seeking a federal rescue of their own, perhaps up to $50 billion.
Why the disconnect? It may reflect a new reality characterised by mild economic cycles but also by pocketbook well-being that isn't keeping pace with economic productivity gains.
Many economists are saying it's a recession despite the GDP numbers and forecasting a difficult economic climate well into next year.
"It's quite clear that we are in a recession," says Asha Bangalore, an econ-omist at Northern Trust. "I don't know why we're taking so long to use the word ... I don't think we need to see an official announcement."
To some extent, the word choice is academic.
On the heels of their party nominating conventions, presidential candidates John McCain and Barack Obama are both campaigning with a focus on how to meet voter concerns about the downbeat economy.
Republican Rahm Emanuel of Illinois said he and fellow Democrats in Congress will push for a second economic stimulus package this year - this one possibly including an expansion of food stamps and aid to cash-strapped local governments.
In a nationwide CNN poll in June, 75 per cent of Americans said the nation is in a recession. And a week ago, the national unemployment rate registered a jump to 6.1 per cent, the highest in five years.
Recession
Yet a popular definition of recession has long been two quarters of declining GDP, something that hasn't happened yet. The only down quarter lately has been the small 0.2 per cent decline in the final quarter of 2007.
The official call on a recession is made by a panel of economists, known as the business-cycle dating committee, at the private National Bureau of Economic Research in Cambridge.
They consider a range of data, from job creation to retail sales and industrial production. Yet GDP remains an important part of the calculation.
Making things complicated for anyone who wants to know, the panel generally makes its call after the fact, or near the end of a recession, after weighing the revisions that periodically happen to government data.
Why did GDP look so good in the second quarter?
One reason is the temporary boost of an economic stimulus package, enacted earlier this year by Congress and President Bush, which sent tax-rebate checks to millions of families.
But the biggest factor, economists say, was the impact of international trade. A rise in exports helped GDP but didn't necessarily help lots of US workers.
"What little strength there is in the economy is narrowly based," says Mark Vitner, an economist at Wachovia in Charlotte, North Carolina. "Most US export industries tend to be very capital-intensive" rather than labour intensive.
GDP also got a boost from the weakness in imports. (In government math, what Americans buy abroad subtracts from GDP.)
That's another sign that what's good for GDP isn't necessarily telling a good story about ordinary consumers, who have cut back on everything from oil to imported furniture.
The reality for consumers and workers is better captured in other economic surveys. Some economists say those surveys should be getting more weight these days in making the call on a recession.
"I'd put more weight on jobs and wages and the manufacturing sector," says Charles McMillion, president of MBG Information Services. "If I were on the dating committee, I would say that a recession has started and probably started in December or January."
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