With the fourth-quarter 1979 increase in real GNP reaching an all-time record high, almost everyone agrees that the recession, widely expected to arrive in 1979, never showed up. What then did occur? Everything from a virtual boom to a depression that balanced out to a kind of treading water or dog paddle forward. The mixture of developments still leaves some observers uncertain as to just what happened.
Not everyone believes a recession was avoided. The November issue of New England Economic Indicators, published by the Federal Reserve Bank of Boston, states: "Most economists believe that the national economy slipped into a recession in the first quarter of this year ." As a result, the Boston FRB has begun a "recession watch" from "the probable peak of the current recession, March 1979."
The Boston FRB's recession is not the common garden- type variety envisioned by those who consider a recession to be a major decline in economic activity. There is evidence that some measures of the economy, such as industrial production, reached highs early in 1979 that were never exceeded during the remainder of the year, although no serious decline occurred. Technically, if declines do occur, one might go back to early 1979 as the point from which trouble began.
A similar technical dating of the previous recession has it officially starting from November 1973, although little that resembles major economic weakness occurred until late in 1974. Real gross national product did fall steadily after fourth-quarter 1973, but not drastically.
A significant different this time is that this broadcast measure of the US economy, real GNP, slipped for only one quarter, then rebounded to reach an all-time high in fourth- quarter 1979. Such a performance can hardly be deemed a recession.
Certainly, there was no recession in employment in 1979. Employment climbed steadily and considerably. It rose as rapidly as in periods of boom.
The inflation rate also rose during 1979 as in a boom.
On the other hand, a virtual depression occurred in the domestic automobile industry. Seasonally adjusted sales fell 24 percent from January 1979 through November 1979; production fell 27 percent from May through December.
Booms, virtual levelings-off, depressions, give a wide choice of terms to choose from. But when everything was added together, the result might be best described as a "struggling" economy, an economy struggling to keep from falling apart, or more positively put, an economy struggling to continue growing.
If the economy proved one thing in 1979, it was the inability to talk oneself into a recession. Seldom, if ever, has there been so much premature talk of recession.
All year long, headlines and stories of economic developments were continually slanted to suggest the economy was in or soon to be in a serious recession. Prominent economists, bankers, and businessmen were continually quoted as believing the economy was in a recession.The comments of government officials to the contrary were decried as biased.
There is a long history of government officials and economists failing to recognize recession until long beyond the time when a recession was obvious to most everyone.
In 1979, however, the comments of government economists generally were refreshingly candid and remarkably accurate. The difficulties the economy was experiencing were clearly recognized by them, but these difficulties were seldom , if ever, exaggerated or underplayed.
The public could have done no better in their understanding of the economy during 1979 than to have accepted the views of the government economists rather than those outside the government.