Look Past GDP To Judge If the Economy Is In Recession

In the Wall Street Journal, Sudeep Reddy, ("Economists Weigh Possibility of a Recession Amid Economic Growth" July 28, 2008; page a3) reports that the profession perceives that GDP will not be the sole, decisive factor as to whether the U.S. economy is in recession. Some commentators consider a recession to be synonymous with a decline in GDP. That confuses a metric with the phenomenon you seek to measure.

Speaking with the National Bureau of Economic Research's Dating Committee (the folks who make the call), Mr. Reddy learns a much richer analysis is needed: Victor Zarnowitz is the world's leading authority on the business cycle and a committee member. Zarnowitz "says the downturn in the job market 'is not alone enough, but it already tilts the weight toward a recession.' Mr. Zarnowitz, an economist at the Conference Board, a research group, [and] who has been with the NBER since 1952, says a decline in GDP would give him 'considerably more confidence that the whole thing is in decline.'"

Sudeep Reddy further reports that, "Harvard professor Martin Feldstein, president of the NBER until this month, says the nation has been 'sliding into a recession' since January, when many monthly statistics peaked. But a GDP decline isn't necessary 'if there is enough other evidence that the economy is contracting.'"