Are We Already in A Recession?

New data give support to those who believe the U.S. economy is already contracting.

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Andrew Harrer / Bloomberg / Getty Images

Ben S. Bernanke, chairman of the U.S. Federal Reserve, listens to a question during a news conference following a Federal Open Market Committee (FOMC) meeting in Washington, D.C., U.S., on Thursday, Sept. 13, 2012.

What’s in a name? Would a recession by any other name be as painful? That’s the debate that raged a few years ago as economists and commentators debated whether we were officially in a recession or not. As economist Paul Krugman argued in 2007:

“The official definition of recession has become delinked from peoples’ actual experience. Right now, we’re in an economy with deteriorating employment and incomes, collapsing home prices, and business retrenchment. Is it also an economy in recession? Who cares?”

Broadly speaking this is true. Most of the time and for most people, the difference between no growth and contraction probably doesn’t mean that much. However, we are in a much different situation now than we were in 2007. The Federal Reserve has more or less gone all in with its open-ended quantitative easing. The government’s fiscal mechanism is paralyzed and a large portion of the electorate has no appetite for further fiscal stimulus. If the American economy were to go into a so-called “double-dip” recession the government would be especially hard-pressed to drag us out. It would be a huge blow to the nation’s confidence and would lead to shrinking government revenues and further net job loss in both the public and private sectors.

(MORE: How Bad Is America’s Pension Funding Problem?)

For those reasons, it’s more than a little frightening that we’re seeing a spate of depressing numbers that could signal a recession on the horizon — or that one is already here. On Thursday the Commerce Department revised down its estimate of second-quarter GDP growth to 1.3% from an already sluggish 1.7%. If that weren’t bad enough, the Department also reported that orders of durable goods – long-lasting pieces of equipment like airplanes or heavy machinery – fell 13.2% in August. And Friday, the Project Management Institute was out with a survey which showed that manufacturing activity in the Chicago region was contracting, surprising many analysts. While it’s unwise to read too much into any one of these data, the three in succession are unsettling.

These data also give ammo to bearish commentators who have long been predicting a recession in either late 2012 or early 2013. John Hussman, president of Hussman Economectrics Advisors, is one of those bears and he has recently reiterated that prediction. In his most recent note Hussman wrote:

“We continue to infer that the economy has already entered a recession – something that will probably take several more months to be broadly recognized. We’re seeing fresh lows on the most leading economic component that we infer using unobserved components methods . . . matching weakness that emerged in late 2000 and late 2007. On a slightly positive note, we don’t yet see the near free-fall in these measures that occurred later in 2001 and 2008 as economic weakness rapidly gained momentum.”

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And Hussman isn’t the only one. The Economic Cycle Research Institute – which has good track record calling recessions – has also been predicting a downturn. Now the ECRI is saying that the U.S. is in recession as we speak:

“It has been almost a year since we predicted a recession. Back in December, we went on to specify the time frame for it to begin: if not by the first quarter of the year, then by mid-2012. But we also said at the time that the recession would not be evident before the end of the year. In other words, nine months ago we knew that, sitting here today, most people probably would not realize that we are in recession – and we do believe we are in recession.”

There are dissenting opinions however. The one true strength the American economy has in its corner is the slowly recovering housing market. Bill McBride at the blog Calculated Risk sees the housing sector as a reason why we’ll see growth kick up in the second half of the year going into 2013. Writes McBride, “I think the recovery in residential investment will pick up next year . . . I do think there will be a large increase in housing starts and new home sales in 2013.” McBride also points to a slowing of contraction in the government sector as reason for optimism.

Recessions are notoriously hard phenomena to predict. Any economy is an amalgam of moving parts – any one of which could seize and slow down the larger machine. The headwinds that the global economy is facing are abundant and manifold: the sovereign debt crisis in Europe, high unemployment at home, a slowdown in China and the nearing fiscal cliff. At the same time, barring some malady, the natural state of an economy is growth: populations expand, technology advances, workers become more efficient at what they do. If the global economy can successfully navigate the many headwinds facing it, slowly pay down debts and re-employ workers, there will come a point when the recovery shifts into high gear. Then again, we could have already entered a recession without even knowing it.

MORE: Will the Stock Market Keep On Rising?

143 comments
stephen.dillon15
stephen.dillon15

We never got out of the recession we've been in for years; so yes we are of course already in one.

gordon_wagner
gordon_wagner

8% unemployment? Try 24%. That's the real figure, without the smoke and mirrors. And this isn't a recession -- the Fed has painted the US economy into a corner. Only Ron Paul addressed this issue, and the GOP did all it could to ensure he was not heard. Buy canned goods and ammunition. Make certain you have water stored. It is that bad.

teapartydoc
teapartydoc

One big disconnect from reality is how liberals claim that Bush ruined the economy, but the power of the presidency is too weak for Obama to do anything to improve things. Either the presidency is powerful enough to have an effect, or it is not. Claiming that it is a powerful office when one guy is in(who they called a bumbler at the time), and then not powerful when another is in (so as to absolve him of any responsibility for what has happened on his watch, largely under his orders)doesn't cut it.

tpaine1
tpaine1

A fair point, but it is the Congress that Constitutionally MUST originate all spending bills.  That's why I ALWAYS refer to the "crony socialism" economic model we're enjoying today as the Obama-Pelosi-Reid brand of "trickle up poverty."

mantisdragon91
mantisdragon91

 Kind of like the recovery skidded to a halt once all the Tea Party do nothings got into congress?

gordon_wagner
gordon_wagner

 Thinking in terms of "liberals" and "conservatives" is, in a word, retarded.

Michael Gebert
Michael Gebert

So now Time's political coverage is like its rock and roll coverage— firmly on top of what everyone knew three years ago?

Rumionemore
Rumionemore

A lot of people on the street  have wondered if we ever really left the recession. Sixty percent of jobs created during the recovery were either low-wage or seasonal. This information was released  just as the Democratic Convention began, so it didn't come out in most media until after. Couple this with the Obama adminisration's flatly not knowing what to do to help the private sector to create real jobs (not short-term stimulus ones), and you have what looks like a recession. Much of the business sector will not hire until Obama is out of office.

jonodough
jonodough

anyone with half a brain knows that we have been in a recession. and we are headed toward a crushing depression. seriously, are do the american people have their heads that deep in the sand?

Cjones1
Cjones1

At least you got your cheap thrills Monsewer Matthews. B.O. is responsible for the stinkin' economy and wasted the taxpayer's money on pie-in-the-sky initiatives and stimulus. Progressive pork spending has every adult, child, and grandchild running up a tab of about $370 per month of new federal debt according to the debt clock figures. Y'all are hoping Ben. Bernanke can inflate us out of this mess I guess.Now reports are coming out that the administration is advising federal contractors to violate the WARN act requiring 60 days notice of layoffs due to the looming fiscal cliff. Just another abuse of power by the Executive branch...what's new? Pat Caddell has it right about the press and the obvious collusion with the DNC. You want to raise taxes? Eliminate advertising tax write offs that so many media figures are subsidized by...talk about corporate welfare...

Comte de Dirac
Comte de Dirac

The Obama Recession is upon us. At least we have national health care that is currently driving up the costs of insurance, at least Obama focused on that rather than the economy.

Spectator
Spectator

 I am shocked truly shocked that a rag like time would publish this. 

Mike
Mike

F**K YOU BEN!

Capn
Capn

Cuba's economy is due to pick up any day now.

toocentsworth
toocentsworth

It's always the little people who suffer the most in economic downturns. So you can expect them to vote for safety nets.

Russell A
Russell A

 Astute political analysis.  If the economy improves Obama benefits Nov 6.  "Hey, his economic policies are working! Four more years!"  But if the economy collapses Obama benefits Nov 6.  "I'm voting for the guy who gives me free stuff.  In this economy I can't make it on my own." The man is a genius.

Smegacool
Smegacool

Wake up politicians!  I don't care how you scrub the numbers... every month...every year...this recession started in Dec '07 and it hasn't let up yet.  American Airlines to close DFW main maintenance hub Dec '12 - 1,200 laid-off,etc.,etc.,etc.,

StormDog
StormDog

I just hope all the economic monkeys throwing wrenches around hit themselves often enough that I can have a good laugh too as they struggle to pay their bills every week.

Watson_LA
Watson_LA

Don't almost all states have constitional requirements for balanced budgets?

Russell A
Russell A

 Not all.  The key difference is that states cannot print funny money.  As for us, we would be wise to own some amount of gold and silver.   And maybe a gun.

Watson_LA
Watson_LA

I thought recessions don't begin until 2 quarters of GDP contraction (negative GDP).  We haven't had that since 2009 unless I'm missing something.

StormDog
StormDog

 it is one indicator of many