What Defines a Recession?

I think this question is on most people’s minds these days.  On December 1, the National Bureau of Economic Research (NBER), declared that we are, and it in fact started in December, 2007. 

You can read the entire report at the above link, but I thought it was interesting that the NBER does not use the definition of a recession that I learned defined a recession, which is a decline in a country’s gross domestic product (GDP), or negative real economic growth, for two or more successive quarters of a year.

The NBER report acknowledges at the end of their report in the FAQ’s, that “As of the date of the committee’s meeting, the economy had not yet experienced two consecutive quarters of decline.”  But they also point out that the recession in 2001, did not have two consecutive quarters of negative growth.  They say “Most of the recessions identified by our procedures do consist of two or more quarters of declining real GDP, but not all of them.”

I found a great blog post from the Federal Reserve Bank of San Francisco, which explains how and why it is important for economists to study a variety of factors to determine if there is a recession.  It points out it is very common to have quarterly declines in a recession, but it is still possible to have positive GDP too. They have a chart, which shows Real Gross Domestic Product: Level and Growth Rate for the last 40 years or so.  It shows overall, the GDP has followed a strong, upward trend, but the GDP does tend to dip or flatten out during a recession.

All this talk aside, there is no doubt to me that the economy has slowed in a variety of ways.  From the chart I mentioned above, it looks like there have been four recessions in my life-time, but I don’t remember much about three of them.  I was only a baby, a kid, and a teenager.  Money was tight in my family growing up, so I never noticed my parents spending or having a lot of money, and then having to cut back because of the recessions.  In the recession of 2001, I don’t remember any drastic changes we made-but it was a very short recession.

So this current economic downturn, is very concerning and interesting to me.  Notice that I have not used the word recession-yet.  I am still a bit unsure what actually defines a recession.  It seems there are different ways to define a recession depending on your perspective, background, and personal circumstances. 

I have not talked to one person who isn’t concerned about the economy, but aren’t most people always concerned with the economy more or less?  Jobs are another huge issue.  The company my husband works for started laying people off and downsizing about 18 months ago.  There is also the issue of the sub-prime mortgage failure that cost hundreds of thousands of jobs, and contributed in a major way to the economy we have right now.  The auto companies that are in trouble, have been downsizing, and laying workers off for years.  Perhaps these were all signs that a recession was coming, and the signs went unnoticed for the most part.

Every paper, or news report I read or hear, paints a very bad picture of our economy.  I am not denying that it is bad, but I also think some of these reports are a little premature.  Black Friday sales results were much higher then expected by these same media outlets.  The New York Times reports sales from Friday and Saturday were up nearly 2 percent from last year.  Internet sales were up 11.8 percent from last year.

This doesn’t mean everything is A-OK, but if we were in a deep recession as bad as the media says, would people be spending what little money they had on stuff? In my own town, I stopped into a Kohls on Friday, to get some sheets for Ryan’s twin bed.  The line for the registers started at the back of the store at the customer service counter!  I had never seen that many people in any store before. 

I looked at what they were buying- Nike shoes, stacks of sweaters, toys, housewares, Christmas ornaments- basically everything Kohls sells, people were buying.  They may have been looking for sales, but I had never seen a store this crowded, even when there was no talk of the economy being in a recession.

I have had friends living in Denver tell me they can’t get into the restaurants they want to go to on the weekends, because they are so crowded.  The sport team games in Denver are usually still sold out as well, and the tickets are not cheap.

If you are a regular blog reader of mine, you know we bought a different house in October, and have been fixing it up somewhat before we move in.  Every vendor we have called to have work done, has told me they are booked at least three to four weeks in advance.  We bought our carpet three weeks ago, and they are finally able to install it today.  Our painter told us at the beginning of November that his only opening would be after Thanksgiving.  There was one day, where the weather was cold, he was able to work us in, since he could not work outside.  A few of the co-workers at work are having some work done at their houses, and they also say it is hard to get someone who isn’t booked a few weeks in advance.  It seems like a lot of homeowners in my area, are having remodeling work done on their homes.

The New York Times ran this story a week ago, pointing out the only way mothers can afford Christmas presents for their kids is by depriving themselves of designer jeans!  Is this really the best example the New York Times could find on how the economic downturn is affecting families? 

The economy is struggling, and people are having to cut back on spending-my family included. But what are we cutting back on?  Designer jeans?  Gifts for adults at Christmas?  Only giving our children a few toys this year, or less expensive ones? Vacations? New home purchases? New cars?

It seems like there is some contradiction in what we are being told, and the actual reality that I see for the most part. Yes, there are impoverished people in every town, and in every state. That doesn’t go away, even when the economy thriving.  There is no doubt many have lost jobs and are trying to find new ones.

My family is watching our spending more than we have had to do-ever.  The times are uncertain, but at the same time we are trying to keep a positive attitude and keep in mind that economies do go through ups and downs.  We are trying not to get into a ‘gloom and doom’ frame of mind.  Considering all the bailouts, and other strains on the economy, it seems like things could be a lot worse. 

What do you think?  Do you think we are in a recession, or do you think the media is painting a bleaker picture in general than how things are?