From: pat@chinet.chi.il.us (Patrick Louis Sugent)
Subject: Re: ARRRGH!!
Date: Wed, 23 Dec 1992 22:21:50 GMT



>"They said on the radio at noon that some stupid financial
>analyst is now saying that the recession actually ended in
>March of 1991, but folks are only now beginning to realize it.
>Yeah, right.  It goes with the fact that California hit
>double-digit unemployment, the past month."

  Pat takes a look at the size of the pile of soapboxes he is about to
step on and wonders if the height isn't making this rant a bit risky.
Deciding "what the heck", he steps on...

  "Actually, the media's coverage of the announcement made by the
National Bureau of Economic Research tends to frustrate me as well,
but for entirely different reasons.  You see, I've been running around
ranting for nearly a year and a half that we were not technically in
recession as of March of 1991.  The data for my conclusion have been available 
and often cited by such periodicals as _The Economist_ and _The Wall Street 
Journal_, but they have been largely ignored by the popular media.  There are 
some theories for why this is, but I'll get to that later.

  "First of all, I think it is important to note that the technical
definition for recession is two consecutive quarters of GDP loss.  As
is shown by the following chart originally posted by Snark, we have had
positive GDP growth since March of 1991, therefore the conclusion that
the US _as a whole_ has technically been out of recession since March of 1991.

-Snark chart-


"Turns out I was too conservative.  I finally got my hands on the GDP
figures for recent quarters (I'm reading from a graph, so I may be off
by 0.1%):

qtr yr annual rate of GDP growth
  1 90 +2.8%
  2 90 +1.0%
  3 90 -1.6% (start of recession, technically)
  4 90 -3.8%
  1 91 -3.0% (last quarter of recession, technically)
  2 91 +1.7% (beginning of six consecutive quarters of growth)
  3 91 +1.2%
  4 91 +0.6%
  1 92 +2.9%
  2 92 +1.5%
  3 92 +3.4% [re-estimated since Snark's post]

-End Snark chart-

  "As the cart makes visible, the US has been in a period of growth 
since March of 1991.  So, when NBER announces that the US recession has
been over since 3/91 they are technically correct and there isn't really
a great deal to dispute.  Now, whether or not the economy is as healthy
as we like it and whether California (for example) is out of
recession are entirely different questions. 

  "When questioning whether California is in recession it is important to
note that there is a great deal of regionality in economic growth and it
is entirely possible that California is still in recession while the
the nation as a whole is not.  There are always pockets of recessions
in growing economies and vis-versa.  This last national recession was
particularly regional.

  "What I do know about both California and pockets of New England is that 
they were both the only two "regions" in the country expected to have
lower Christmas retail sales than last year (this was about 2-3 weeks
ago).  I don't really have the up to date GDP data to support or deny
the existence of continued recession in California, but I suspect they
are still in one.  The reasons given for this vary, but some of the most
agreed upon are as follows:

  "1)  California and New England rode the Real Estate 'Bubble/Boom' much
higher during the expansion.  This allowed their paper economy to be
much greater than their real economy leaving a great deal more room
to fall once 'the bubble' burst.   The midwest (by comparison) had 
relatively stable Real Estate development and didn't suffer nearly as much 
once 'the bubble' burst.   In fact, parts of the midwest didn't really
undergo 'recession' at all.

  "2)  California has/had a 'Lion's share' of the defense budget.  Budget
cuts have left this industry in trouble along with areas dependent upon it.

  "3)  California's state government happily overextended itself and its
responsibilities when money was flowing freely (related to both (1) and (2))
leaving itself ill-prepared to handle a downturn.

  "4)  California's service economy (financial institutions/insurance/etc.)
was 'too large' compared to its pure production sector leaving it in
trouble once production started to fall.  [This explanation is, perhaps,
the most debatable of the four.  Although, I'm quite sure that anyone
could debate any one of these points] :-) 

  "Additionally, while unemployment in CA is high, that does not necessarily
mean that CA is in recession (though it may well be).  Unemployment is
a lagging indicator, meaning that it actually goes up a little as the
economy is growing and takes a while to go back down.  


  "To get back to the NBER report that the recession ended in 3/91,
CNN yesterday asked the question, (paraphrased) 'If the recession ended
in 3/91 why didn't the media notice?'  The answer, quite simply, is that
some of the media did.  _The Economist_ has gone on for a year and a half
about the growing GDP data.  _The Economist_ was also quick to point out
that we are headed for a productivity lead recovery, our first in decades.
Productivity lead recoveries are much more slow than other types based
on consumer spending or speculation (for example), but they are
inherently more healthy since it is productivity that can most directly
be related to national wealth.

  "Why didn't the popular media notice the growing economy?  Well,
the answers for that vary as well.  Cynical Republicans note that
Clinton was extremely successful in manipulating the media and he probably
not only guided their stories with his campaign speeches (the media tends to
be negative anyway), but he also drove consumer confidence down.  Declining 
consumer confidence has a very real negative effect on growth.  

  "Another explanation is the advertising and media industries _were_ hard
hit by the recession.  If you are a reporter and things are tough for you,
you are likely to write about it.  Personally, I think this explanation
is probably a bit more on key overall, but I (and many economists I read)
think that the negative effect of the campaign cannot be ignored.  

  "Of course, the final explanation I offer is that in some sense they
were actually correct.  The recovery we experienced was much slower
than the recovery in '82 - '84 and as such it appeared 'bad' by comparison. 
However, even this could be attributed to a variety of factors such as (i)
it being a productivity lead recovery, (ii) the time factor involved
in reducing debt levels, (iii) the budget deficit holding up long-term
interest rates, (iv) the short and shallow nature of what was technically
the recession, and (v) the various other factors that make up a complex
macro-economy.  

   "In fact, points (i) and (iv) would tend to indicate that
(long-term) this recovery, though slower than the '82 -'84 recovery, will be 
much 'better' for the long-term health of our economy.  I would
not really expect the popular media to be able to explain in a
sound bite why this is true nor expect an unemployed person to be sympathetic 
to it, but it is (IMHO) an important facet of the latest economic trends.


  "Finally, does anyone want to know how far you can see from on top this
pile of soapboxes before I climb down. :-)

  "G-rated responses more than welcome, but I'm going to be in and out
for the duration of the Holidays. :-)

Pat



-- 
Patrick Sugent                       

pat@chinet.chi.il.us