Economic Recession? These Aren't the Worst of Times

According to the most recent Gallup data on the public's economic perceptions, "87% of Americans say economic conditions are getting worse."

But they're not. We're having rough economic times, and while some in the blogosphere are quick to pin blame on the Bush administration, the most dire predictions of an economic downturn have not come true.

Here's this morning's Wall Street Journal, "Recession? Not So Fast, Say Some":

A funny thing happened to the economy on its way to recession: It's taken a detour.

That, at least, is the view of a growing number of economists -- including some who not long ago were saying a recession was all but inevitable. They note that stock and credit markets have steadily improved since the Federal Reserve intervened to keep Bear Stearns Cos. from bankruptcy in early March, while a series of economic reports have been stronger than expected.

Economists also cite swift policy responses, including a sharp reduction in interest rates by the Fed -- to 2% from 5.25% last September -- and the distribution of fiscal-stimulus checks to millions of Americans, as factors possibly easing the downturn.

"A couple months ago it seemed like we were on the abyss," said Jay Bryson, global economist with Wachovia Corp., referring to the seizing up of credit markets and the collapse of Bear Stearns. "Things have changed....The numbers we've seen recently haven't been as bad as we were led to believe just a few months ago."

Wachovia now puts the odds of recession at 45%, down from 90% in April, and expects growth in gross domestic product of 0.6% at an annual rate in the first and second quarters of this year, followed by 1.2% growth in the third and fourth quarters. While he doesn't expect a recession, he says growth will be very weak through next year.

Indeed, plenty of economic warning signs remain, as reflected in plunging consumer confidence data and polls reflecting deep unease among voters. Rising prices for food and other commodities are prompting Americans to trim some spending and stoking concerns about inflation. The ongoing run-up in oil prices has pushed the average price of a gallon of gasoline to $3.73 as of Tuesday, according to AAA, the automobile group. Home prices continue to decline and many economists expect that to depress spending in the months ahead.

The article goes on to suggest that consumer confidence is low, and some economic data show continuing difficulties, but unemployment claims remain historically low and employers are not radically shredding the size of the workforce.

Zachary Karabell comments on the public's perceptions, and warns that pervasive pessimism threatens to sap America's normal chin-up-can-do-it-tiveness:

There is no denying that the current financial morass is deep and painful. But taking the long view, there is something both startling and disturbing about the gloom that has settled over Wall Street and the country in general. In fact, looking back over the past century, it would be a stretch to rank the current problems as especially notable or dramatic. Something else is going on – namely a cultural rut of pessimism that is draining our collective energy, blinding us to possibilities, and eroding our position in the world.

Right now we have an unemployment rate of 5% and headline inflation topping 4%. We have economic growth of 0.6%, extremely low consumer confidence and weakening consumer spending, small business optimism at a 28-year low, and of course a housing market that is showing declines in excess of 20% in some parts of the country.

These are hardly statistics to celebrate, but they are a far cry from the crises of the 20th century. Next time someone compares the present to the Great Depression, stop them. Between 1929 and 1932, the Dow Jones index went to 41.22 from 380.33, a decline of 89%. Today's hang-wringing about a 20% decline in the major indices (much of it since recouped) doesn't come close.

The unemployment rate in 1933 was 24.9%; seven years later, after the intensive efforts of the New Deal, it stood at 14.6%. Even adjusting for changed methodology since then, today's jobless situation hardly compares. While the recent collapse of Bear Stearns shocked Wall Street, in 1933 alone 4,000 banks failed, and millions not only lost their homes but were rendered homeless.

It is also common today to hear comparisons to the stagflation and grim economy of the 1970s. Here too perspective is in order.

For all the present talk of volatility, in 1973 and 1974 the economy expanded 10% in the first quarter of 1973, contracted 2.1% in the third quarter, went up 3.9% in the fourth quarter, went down 3.4% in the first quarter of 1974, then up 1.2% in the second quarter – continuing like a bouncing ball for another year.

The unemployment rate went from 4.9% in 1973 to 8.5% in 1977, and then nearly broke 10% in 1982. Meanwhile the stock market went from 1067 in January 1973 to 570 in December 1974, a drop of 46%. And there was double-digit inflation and a sharp rise in the price of oil, which represented a higher percentage of consumer spending than today.

Karabell concludes thus:

The path to a more balanced view of ourselves is impossible to chart, but the first step is surely to have better perspective on where we are and where we have been. The alternative to grime-encrusted lenses isn't rose-tinted glasses, but more equanimity about our weaknesses and our strengths would surely help us navigate.

I've made similar points as well, for example in my post, "Data Suggest Economic Recession":

Actually, just last weekend I let out a few musing on the economy and housing market ("Housing Woes: Borrowers Abandoning Mortgages Amid Falling Market"), and I mentioned how I noticed one of the first true signs of a recession in the "store closing" sign that went up on the big Wickes furniture storefront down the freeway from my home.

But frankly, things just don't feel that recession-like to me. SoCal's usually behind the market in any case, but things are still pretty robust in my area.

My neighborhood housing situation seems to have improved a bit since I last wrote about it, although, sure, it still looks pretty rough on the market.

Still, it's amazing how robust local job activity is, as evidenced by help wanted signs all over, and by my wife's own recent experience on the retail executive hiring circuit.

It'll be interesting to see some in-depth analytical theories as to why the public's so glum. Perhaps things have been so good the last decade and a half (nothwithstanding the 2000-01 recession), that amid significant market difficulties we forget our history and start clammoring about how this is the worst economy we've ever seen.

I'll have more later!