The Recession Boogeyman

Sorry, but no. Think I'm being unrealistic? It's you who are being unrealistic if you think we're in a recession. In fact, if you think this is a recession, then you've never really lived through a recession.

Eighty thousand jobs lost? Give me a break, you wimp. That's nothing! If this is a recession, then it started in December — when the numbers all started to slump — and so we're three months into it. Historically, when we're three months into a recession, we're losing 250,000 jobs every month.

Worried about new jobless claims? Thursday's report showed 406,000 of them. Sorry, I'm not impressed. Historically, when we're three months into a recession, we're seeing 550,000 new claims.

The same thing is true for just about every economic statistic you can point to, other than the mess in the housing sector. The stock market? On a total return basis, the S&P 500 is only down 11.6% since its all-time highs last October. That, too, is nothing. Nothing!

Are we in a slowdown? To be sure. But not a recession.

But if you think we're in a recession, you may be wrong, but you are not alone. The majority of professional economists agree with you, according to surveys.

Whenever I meet with my clients, or with other institutional investors, I always start the meeting by saying, "Raise your hand if you think we're in a recession." At a meeting with 25 institutional investors on Wednesday I got 23 raised hands.

But then I asked the question again, another way. I said, "Wait a second. If things get worse in jobs, incomes, GDP, industrial production and so on, then we'll know we've been in recession since December. But what if they don't? What if they stay just like they are right now, no better and no worse? Do you still think we're in a recession?"

Not one person raised his hand. Do you see what that means?

It means that while everyone seems to think with certainty that we're in a recession right here, right now, what they really mean is that they think things are going to get worse from here — and when they do, we'll have a recession. But we don't have one now. Not yet.

This recession is just another prediction. Just another economists' forecast. A guess. A whim. Until it really happens, it's just another ghost story to scare the kiddies with.

I don't think things are going to get much worse, because I think we've definitively arrested the worst of the credit crisis that caused the slowdown we're in to begin with. We've turned the corner on that one. But there are lags involved, so the slowdown in the general economy may persist for another couple months, and the statistics may get slightly worse before they get better.

But so what? So what if the National Bureau of Economic Analysis — the nabobs who "officially" decide when the economy's business cycle peaks and troughs — declare that this slowdown really is a recession?

I'm not scared of that. It's just words, not reality. The last time the gurus at the NBER declared an "official " recession was in November 2001, when they said one had begun in March of that year.

But guess what? The next July they declared that the recession they'd just declared in November 2001, ended in November 2001! In other words, they recognized the recession at the exact moment it was already over.

They did even worse in the previous business cycle. Then they declared in April 1991, that a recession had begun in July 1990. But then in December 1992, they declared that recession had ended in March 1991 — that is, it ended a month before they had announced it in the first place!