Schmissmession…
It seems today that to say the US is in recession is as un-patriotic as questioning governmental intent. So…for the baby ears out there, I will be speaking of the US economy in terms “that rhyme with schmissmession”. Perhaps this recession is more difficult for “officials” to recognize because it is not lead by the business cycle, but rather by changing consumer behavior.
Why has consumer behavior changed? First, when adjusted for inflation “real wages” have declined by 1% this year, and have declined for 5 consecutive years. Meanwhile, oil has hit a record $118 per barrel, natural gas costs have risen 93%, energy as a whole has increased 15%, medical costs are up 77% from 2005, and food costs are rising rapidly. Simultaneously, consumers are being hit with a phenomenon not seen since 1987, declining home values and stock prices. With declining wages, declining asset values, and prices rising, is it a big mystery why consumers are not spending like they used to. But we should ask ourselves, is that a bad thing?
Americans are now spending more than they save, as represented by a negative national savings rate. More than half of Americans (52%) say they cannot afford to save or have not saved enough. Seventeen percent say they cannot afford to save at all, while 35% save but not enough for short-or long-term financial needs. Factors cited as barriers to savings include: large regular expenses (72%), unexpected expenses (42%), low or unreliable incomes (66%), and large consumer debts (60%).
On the spending side-which accounts for 2/3 or the US economy-growth will be limited if not non-exsistent. Projections suggest the slowest growth rate in 17 years. Economists were projecting a 2.1% increase in spending over 2008, which would have been the smallest increase since 1991, but now are expecting no growth in 2008.
Now…are we in a recession? Or just in a “period of slow growth”? According to the most accepted definition, a recession is two or more consecutive quarters of decline in GDP. By this definition we are in a “period of slow growth”. Fourth Quarter 2007 saw GDP growth decline from 4.9% (third quarter) to .6% (fourth quarter). First quarter data are not out yet, but even with further retraction we would need one more quarter of decline for a recession. However, “The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a better way to find out if there is a recession taking place. This committee determines the amount of business activity in the economy by looking at things like employment, industrial production, real income and wholesale-retail sales. They define a recession as the time when business activity has reached its peak and starts to fall until the time when business activity bottoms out.” By this definition, we are arguably in a recession.
So are we in a recession? It depends on who you ask. I say the best metric for anything is to look at your peer group (unless your last name is HILTON), if you’re all spending freely chances are the economy is doing well, if not, we might be in a shmissmession.
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