Seeing an End to the Good Times (Such as They Were)

Seeing an End to the Good Times (Such as They Were)


By David Leonhardt


The New York Times

March 8, 2008



If history is a reliable guide, the recession of 2008
is now unavoidable.


The dismal jobs report released Friday showed overall
employment to be lower than it was three months ago.
Every time such a slump has occurred since the early
1970s, a recession has followed - or already been under
way.


And if the good times have really ended, they were
never that good to begin with. Most American households
are still not earning as much annually as they did in
1999, once inflation is taken into account. Since the
Census Bureau began keeping records in the 1960s, a
prolonged expansion has never ended without household
income having set a new record.


For months, policy makers and Wall Street economists
have been predicting, and hoping, that the aggressive
series of interest rate cuts by the Federal Reserve
would keep the economy growing, despite the housing
bust. But the possibility seemed to diminish almost by
the hour on Friday.


Shortly after 8 a.m., the Fed announced yet another
measure meant to unlock the struggling credit markets.
At 8:30, the Labor Department released the unexpectedly
poor jobs report. Almost immediately, the economists at
JPMorgan Chase - who only last week had told clients
they thought the economy was still growing - reversed
course and said a recession appeared to have started
earlier this year.


Stocks fell when the markets opened at 9:30, recovered
and then fell again, with the Standard & Poor 500-stock
index closing down 0.8 percent. Traders became even
more confident, based on the price of futures
contracts, that the Fed would cut its benchmark
interest rate three-quarters of a point, to 2.25
percent, when policy makers meet on March 18.


'The question was always, ˜Would the economy hang on by
its fingernails?' ' said Ethan Harris, the chief United
States economist at Lehman Brothers. Based on the
employment report, Mr. Harris said, 'there's a very
high probability that we're in a recession now.'


Even the one apparent piece of good news in the
employment report was a mirage. The unemployment rate
fell to 4.8 percent, from 4.9 percent in January, but
only because more people stopped looking for work and
thus were not counted as unemployed by the government.


Over the last year, the number of officially unemployed
has risen by 500,000, while the number of people
outside the labor force - neither working nor looking
for a job - has risen by 1.3 million.


Employment has risen by 100,000, but even that comes
with a caveat: there are also 600,000 more people who
are working part time because they could not find full-
time work, according to the Labor Department.


'The decline in the unemployment rate,' said Joshua
Shapiro, an economist at MFR, a research firm in New
York, 'should not be viewed as good news.'


Much of the economic stimulus put in place by the
government will begin to take effect in the next few
months, which does leave open the possibility that the
country can still escape a recession. Policy makers
have reacted quite quickly to this slowdown, relative
to previous ones.


The Treasury Department will begin sending out rebate
checks - of up to $1,200 for couples, plus $300 per
child - in May, as part of the stimulus package
negotiated by President Bush and Democratic leaders in
Congress. The Fed has already cut its benchmark short-
term interest rate five times since September, and such
reductions typically take six months or more to wash
through the economy.


White House officials have predicted in recent weeks
that the economy would avoid recession, but after the
release of the jobs report, they offered a subtly
different forecast. At the White House on Friday,
Edward P. Lazear, the chairman of Mr. Bush's Council of
Economic Advisers, parried reporters' questions about
whether he now thought the economy would slip into a
recession.


Instead, he said, 'I'm still not saying that there is a
recession.'


The administration does expect growth in the current
quarter to be slower than it had previously thought,
before accelerating this summer. 'Obviously, we are
concerned,' Mr. Lazear said. But he added that he
remained hopeful that 'growth will pick up, and pick up
quickly.'


The most commonly cited arbiter of recessions is the
National Bureau of Economic Research, a group of
academic economists that is based in Cambridge, Mass.
(Mr. Lazear referred to the group at his briefing,
saying it would not be clear whether there had been a
recession until the bureau had made an announcement.)


The seven economists who sit on the bureau's recession-
dating committee began exchanging e-mail messages late
last year about whether the economy was on the verge of
a recession. But committee members said Friday that it
remained too early to know.


The bureau defines a recession as a significant,
protracted decline in activity that cuts across the
economy, affecting measures like income, employment,
retail sales and industrial production.


'Given that definition, the committee can't possibly
call a recession until it has been going on for a
while,' said Christina D. Romer, an economics professor
at the University of California, Berkeley. 'There is no
way to know if the downturn will be sufficiently long-
lasting until it has lasted for a while.'


The committee did not announce the end of the last
recession - which came in November 2001 - until more
than a year-and a half later. Robert J. Gordon, a
Northwestern University economist on the committee,
said any announcement about the start of a new
recession was unlikely before the last few months of
2008 at the earliest.


Recent recessions have inevitably brought inflation-
adjusted income declines for most families, which would
be particularly painful given what has happened over
the last decade. For a variety of reasons that
economists only partly understand - including
technological change and global trade - many workers
have received only modest raises in recent years,
despite healthy economic growth.


The median household earned $48,201 in 2006, down from
$49,244 in 1999, according to the Census Bureau. It now
looks as if a full decade may pass before most
Americans receive a raise.