Economists Forecast Recession -- Or Do They?

The latest WSJ poll of economists show that 75% believe we are in a recession, and that the economy has further to fall, and that housing prices won't hit bottom until 2009 or later. (Source: WSJ.com, U.S. Economy Hasn't Hit Bottom, Survey Says, April 10, 2008)

However, the economists forecast the economy to grow .2% in Q1 2008, .1% in the second quarter, and 2.1% in the third quarter. As painful as this level of growth is for the economy, it is not a recession in technical terms, which is two quarters of negative GDP growth.

However, it can feel like a recession without actually being a recession in technical terms. The National Bureau of Economic Research (NBER) is the official arbiter of economic expansions and contractions, or business cycles. The most recent recession lasted between March 2001 - November 2001. However, during that time period, GDP growth was negative for only one full quarter. (See NBER, Business Cycle Expansions and Contractions)

However, the NBER defines as recession as "a period of falling economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales." It doesn't restrict itself to using GDP growth because it is only measured quarterly and it is subject to revisions (See NBER, Business Cycle Dating Committee, July 2003; The Business Cycle Peak of March 2001)

During that time period, GDP growth was positive for Q2 and Q4, and negative only for Q3. Although GDP growth was negative in Q1, the recession only started in March, so there wasn't a full two quarters of negative GDP growth in that recession. (See Google Spreadsheet, GDP Growth)

What It Means to You

Whether an economic downturn is a true, technical recession or not, any period of rising unemployment, declining personal income and declining retail sales is going to feel like a recession. Whether this recession is ever technically defined as one or not, it already feels like one to all the people who are losing homes through foreclosure, jobs, and income. Relatively high food and gas prices will feel like lower income since there is less discretionary income to spend on other things.

How to Survive a Recession

• Recession and Your Investments
• Pink Slip? What's Next?
• Avoid Mistakes When Selling in a Slow Market