The Evolving Definition of “Recession”

May 03 2008 Published by under Featured News

The MSM is often held in contempt for its poor coverage of the U.S. economy, and justifiably so. After months of reporting on stock market declines, softness in the job market, and the sub-prime mortgage “crisis,” the MSM image of an economy in distress was refuted by new Commerce Department figures showing 0.6% GDP expansion in the first quarter of 2008. In addition, the unemployment rate dropped to 5.0% from 5.1%. While few people are ecstatic about sluggish 0.6% growth, MSM hype about a severe economic recession has yet to be borne out.

Throughout the primary season, polls have shown that the economy tops the list of voter concerns. When jobless claims began tracking upward, candidates in both the Democrat and Republican fields began emphasizing an economic message. Congress and the Bush administration took the economic downturn so seriously that they enacted a “stimulus” package, the fruits of which most American taxpayers will be receiving shortly in the form of $600-$1200 payments. There was a bipartisan consensus that the economy was in recession and something needed to be done.

However, it now appears that the slowdown is far from a crisis. Obviously, overall economic fluctuations have different impacts – a person who is unemployed may be experiencing a personal crisis, but that’s true even when the economy is expanding. And it is expanding, although at an uninspiring 0.6% rate, which may well be revised down at a later date. Even so, the Washington Post put a positive spin on the new Labor Department numbers, and called attention to some interesting details:

Construction and manufacturing shed a combined 107,000 jobs, continuing a horrid year for workers in those sectors. With consumers facing higher prices for staples such as food and energy and less wealth from their homes, retailers cut back as well, shedding 26,800 positions.

But those losses were partly offset by other sectors that kept hiring, soft economy notwithstanding. The professional and business services sector added 39,000 jobs, and education and health-care employers added 52,000 positions. Even the finance sector, which includes decimated mortgage and real estate firms, added 3,000 net jobs.

The job market goes through ups and downs on a daily basis, and thousands of jobs are created and lost each month. In April, there was a net loss of 20,000, which was well below expectations. It’s certainly preferable to have a net gain, but the economy isn’t losing hundreds of thousands of jobs each month. The Post also noted that the stock market is up 10.8% from its March 10 low. There’s a difference between a downturn and a recession, and the MSM missed it.

To be fair to journalists who cover the economy, a growing employment market is difficult to report on properly. Journalists are naturally better at reporting an event rather than a trend, because an event provides concrete facts from which to build a story. On the other hand, reporting on economic trends is largely based on speculation, and doesn’t play to the MSM’s strength – telling a detailed story in the past tense. If a corporation lays off 200 workers, it’s an easily-reportable event. If a large employer opens a new facility that will create 200 jobs, it’s an easily-reportable event. But most employers are small or medium-sized, and job growth is usually modest on the individual business level – a retail store that adds three new cashier positions in one year isn’t going to make headlines. Modest job growth adds up over time – the U.S. economy has had a net gain of 25 million jobs since 1993, but the MSM isn’t equipped to report on it.

In an effort to compensate for this deficiency, the MSM has a bad habit of concocting an exciting story when one doesn’t necessarily exist. A popular MSM meme of the last few months has been the sub-prime mortgage “crisis.” Reputed libertarian journalist John Stossel throws cold water on the sensationalistic reporting:

[A]re we really experiencing a mortgage-default “crisis”? No. The Mortgage Bankers Association’s 2007 fourth-quarter survey reports that foreclosures came to 2.04 percent of all mortgages. Many of those were speculators seeking flip profits rather than homeowners losing a dream house. During the quarter, only 0.83 percent of homes entered the foreclosure process. It may get worse — in March, “foreclosure filings, default notices, auction sale notices and bank repossessions rose 5 percent,” Reuters reports. But let’s keep things in perspective: Ninety-eight percent of borrowers are not in foreclosure. Only a small percentage of them are even late in payments.

The widely-cited definition of “recession” is two consecutive quarters of economic contraction. That may be an insufficient definition, because it doesn’t take into account the severity of the contraction. Unfortunately, the MSM definition of “recession” hasn’t yet been proven accurate either.

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