TODAY, talk of recession is widespread. Suddenly, ``there are no signs of recession'' has given way to ``how bad will a recession be?'' The magnitude of a probable recession is being related to the anticipated magnitude of the difficulties in the Middle-East and the heights to which oil prices may climb - the higher the price of oil, the worse the recession. This new talk is as unrealistic as previous talk contending there were no signs of recession. This is not the 1973 oil boycott, conducted under peaceful conditions. Today, we are dealing with preparations for armed conflict, if not armed conflict itself. While detesting war, we need to recognize war always has been a stimulant to the United States economy. A massive US military effort could work to bring the economy out of its doldrums.
The present situation, rather than pushing a weak economy into recession, may enable the economy to avoid recession. It would be wise to realize, however, even such a stimulus might not bring the economy back to growth levels one might have contemplated a while back. It might not because of the lower starting point from which the economy would be taking off.
Just prior to the Iraqi crisis, the Commerce Department published revisions for gross national product (GNP), the nation's production of all goods and services, which drastically changed the estimated level of the US economy. We now find the economy was operating at a level which we previously believed had been reached nine months ago. In effect, the country lost nine month's worth of production gains.
Revisions of US economic data have become commonplace in recent years. The new data are commented on, accepted, and we scarcely cast a glance backward. More than a glance is needed this time.
The recent GNP revisions generally evoked comments on how much more slowly the economy had risen in the last year or so than previously believed. The widespread assessment has been that such a slower rate of growth is a matter of concern; but, after all, there still has been some growth.
The problem, unfortunately, goes beyond the recent slower growth to the levels achieved by the economy.
Our present data show real GNP at an annual rate in constant dollars for the second quarter of 1990 to be $4,163 billion. Previous data had shown the economy reached a production level of $4,163 billion back in the third quarter of 1989, nine months ago. The economy finds itself producing today what it thought it was producing as long ago as the third quarter of 1989!
Second-quarter 1990 GNP is more than $40 billion annual rate constant dollars less than we previously believed it was, a tremendous loss. With the economy producing so much less, is it any wonder the federal deficit is growing.
If the economy had fallen from the $4,163 billion in the third quarter of 1989 to $4,133 billion in the fourth quarter, we would have considered the economy to be in a recession. Now that we have discovered the economy produced only $4,133 in the fourth quarter of 1989, we also know it only produced $4,130 in the third quarter of 1989, not the $4,163 previously believed. So we say there was no recession because the economy rose, albeit slightly, in the fourth quarter of 1989.
But whether we now call the fourth quarter of 1989 a recession or not, the fact remains the US produced $41 billion (annual rate) less than indicated at the time. Moreover, the economy produced $43 billion less in the first quarter of 1990 than had previously been recorded. The production loss is enormous.
Other revisions are equally unsettling. Personal consumption expenditures in constant dollars in second quarter 1990 are even less than previously reported for the third quarter of 1989. Today's deflated personal income (excluding transfer payments) is a whole year behind where we thought it was. With wages and salaries in current dollars lower than we thought they were in May 1989, more than a year ago, is it any wonder constant-dollar consumption spending and personal income today are nowhere near the levels we thought they were at?
It is shocking to learn from the revised GNP quarterly rates of change, the US has had a ``growth-recession'' (not quite a recession) under way since the first quarter of 1989 rather than the third quarter of 1989.