Footsteps of a recession grow louder

Economists can't officially call it a 'recession' until six months after it began, but this one's arrival seems noisier.

By David R. Francis columnist

from the January 28, 2008 edition

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Recessions usually arrive in the United States as quietly as a toddler's footsteps – barely heard. They "sneak up on us," says Victor Zarnowitz of the National Bureau of Economic Research in Cambridge, Mass.

Dr. Zarnowitz is one of the economists on the NBER's "dating committee," which has the task of naming the months when a recession started and the subsequent recovery began.

Today's recession, if it's not just a major slowdown, has arrived with the accompaniment of financial trumpets blaring dissonant notes. There's the housing bust, the subprime mortgage mess, the devalued collateralized debt obligations (CDOs) with their mysterious mix of mortgages, the plunge in the US dollar, oil at $100 a barrel, rising unemployment, and unsettled consumers.

The economic news is "noisy," says Zarnowitz, who also keeps track of the economic indicators put out by the Conference Board in New York.

That business research group has not yet forecast a recession, but Zarnowitz says it can't be ruled out. A growing number of economists say the nation is already in recession. As long ago as November 2006, Washington think-tank economist Dean Baker wrote a 19-page study predicting a bust in the housing bubble would bring recession in 2007.

The Federal Reserve, with its large cut in interest rates last week, is acting as if a recession is imminent. President Bush and Congress are proposing quick tax rebates and other measures, trying to keep the economy moving ahead.

The NBER usually declares a recession after a six-month decline of important economic statistics such as gross domestic product (GDP), industrial production, employment, retail sales, manufacturing sales, and wholesale sales. But economists in general have a poor record of forecasting recessions. That's partly because the economic data arrives late and is often revised even later. "I don't know good examples of predicted recessions," says Zarnowitz.

But there are exceptions. Economist Lacy Hunt and his boss, Van Hoisington, wrote in a review last April for Hoisington Investment Management Co., in Austin, Texas, that "faltering consumer spending and a continuing housing re­­cession will lead to recessionary conditions in the quarters ahead."

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