The Great Recession of 2008?

It probably won’t happen, says DIANA FURCHTGOTT-ROTH, and even if it does, we may not know until 2009.

The prospect of a 2008 recession is the talk of Washington. Alan Greenspan recently estimated the likelihood at 50 percent. Hundreds of financial experts and economists have weighed in with opinions ranging from “certain recession” to “definitely no recession.” Whose prediction is right?

The old saying goes that economic forecasters were invented to make meteorologists look accurate. When the weather reporter predicts rain, one can look outside to see if the forecast is correct. But when an economist predicts a recession, the only verification is the opinion of other economists.

The federal government is our official source of information about unemployment, inflation, and thousands of other economic indicators. The informal definition of a recession is two consecutive quarters of negative economic growth. However, it is common practice to leave the determination of a recession to a committee of economists at the National Bureau of Economic Research (NBER), a private organization of academic economists.

Unlike rain, no one can be sure when a recession has begun, or when it has ended. The NBER designates the beginning of a recession months after it has started and designates its ending months (or sometimes years) after it has ended. It measures business cycles on a monthly basis and classifies the period between the peak and trough of a cycle as a “recession.” The NBER has reviewed historical and current economic data to designate 33 American economic recessions since 1854; the most recent one lasted from March 2001 through November 2001. But it wasn’t until November 2001 that the NBER pinpointed March 2001 as the beginning of the recession; and it wasn’t until July 2003 that it determined precisely when the recession had ended.

Whether or not there is a 'recession' in 2008 will depend both on actual economic activity and on the subjective judgments of the National Bureau of Economic Research.

One might infer that the U.S. economy was expanding consistently before March 2001 and then contracting consistently until November 2001. But economic data from the federal government’s Bureau of Economic Analysis reveal a much different picture. The economy contracted in the third quarter of 2000, the first quarter of 2001, and again in the third quarter of 2001. But it expanded in the fourth quarter of 2000 and the second quarter of 2001. In other words, there was choppy economic performance throughout both years. If one defines a recession as two consecutive quarters of negative growth, then no recession occurred.

So will there be a recession in 2008? The NBER usually waits several months before designating a recession. So if a recession were to begin in January 2008, the NBER might not announce it until the summer or fall. If a recession began next summer, it might not be identified as such until early 2009.

Some experts believe that a credit shortage will tip the economy into negative growth. The credit crunch has indeed caused havoc in the financial and real estate sectors, and the Federal Reserve reacted last week by lowering interest rates by a quarter of a percentage point. Columbia Business School economist Charles Calomiris, a visiting scholar at the American Enterprise Institute, believes that the Fed’s actions thus far have been appropriate, but that further loosening of the money supply may not be necessary. Calomiris sees the housing finance shock as small relative to the total economy. Although subprime mortgage losses will probably range from $300 billion to $400 billion, housing prices are not collapsing.
The most precise measure of change—the Office of Federal Housing Enterprise Oversight (OFHEO) index comparing sales prices of the same houses over time—declined by 0.4 percent in the third quarter of 2007, the first quarterly decline in 13 years. Yet prices were still 1.8 percent higher than they were a year ago. Although Calomiris recognizes that further declines are likely, he thinks they will be concentrated in certain regions, and likely will not exceed an average decline of 5 percent nationally, as measured by the OFHEO index.

Others, such as American Enterprise Institute resident fellow Desmond Lachman, a former strategist at Smith Barney, believe that the Fed did not go far enough. Lachman sees a much larger financial crisis in the making and reckons that the ongoing housing bust runs a risk of aggravating that turmoil. Like Harvard professor Martin Feldstein, he says the Fed needs to be more aggressive in responding to the credit crunch if a serious economic slump is to be averted.
“We clearly have had a major house price and credit market bubble between 2000 and 2006 that is now in the process of deflating at a time that oil prices are at $90 a barrel,” Lachman explains. “House prices have already started to decline and could very well decline by 5-10 percent a year over the next few years, which will erode the underlying collateral of bank mortgage lending.”

The Fed may have been prudent in lowering rates on December 11th, but it was clearly unprepared for the inflation figures that were released by the Bureau of Labor Statistics on December 13th and 14th. Both the producer price index (PPI) and the consumer price index (CPI) increased by far more than expected. The PPI jumped by 3.2 percent in November and by 7.2 percent over the past year. The CPI rose by 0.8 percent last month and by 4.3 percent over the past year. These numbers may stoke inflation fears and dissuade the Fed from pursuing more rate cuts.

Other economic remedies, such as tax relief, are available to stimulate the economy and prevent a recession. Lawmakers could make the Bush tax cuts permanent, or they could even pass new tax cuts, as several Republican presidential candidates have proposed. The prospect of higher taxes after 2010, when the Bush tax cuts expire, has had a dampening effect on current investment.

On balance, it is not likely that the United States will experience a recession in 2008. Most economic forecasters expect growth to continue in the 2.5 percent range. Employment and personal income have remained strong through October and November of 2007, so consumption spending should continue, buoying the economy. The weak U.S. dollar makes American exports more competitive, thereby fueling economic growth and employment. Even if the economy dips in 2008, its slowdown may not last the requisite “several months” to be designated a recession by the NBER.

In other words, whether or not there is a “recession” in 2008 will depend both on actual economic activity and on the subjective judgments of the NBER. Neither is easy to predict, and an inaccurate forecast today will not be proved false for 12 months or more, by which point it will have been long forgotten.

Diana Furchtgott-Roth is a senior fellow at the Hudson Institute and a former chief economist at the U.S. Department of Labor

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Top Careers to Pursue and Refrain From During a Recession

During a recession, disposable income tends to dissipate. For some people, purchasing the bare necessities can be difficult. So before you decide which career path to take, look over the following lists below.

Careers to Pursue

Health Care $50,000 +
People will always get sick creating a constant demand for Health Care. Depressions rates are often at a high creating an additional need. Examples include: Doctors, Nurses, Pediatricians, Specialists, and Therapists.

Transportation $30,000 +
Unable to afford the extreme gas prices, people opt for taking the city bus or subway. Examples include: City Bus Driver and Subway Driver.

Beauty $30,000 +
Presentation has always been and will continue to be important to an individual and required by their boss. Examples include: Hairdressers and Barbers.

Education $30,000 +
People don't pull their children out of school just because of a recession and often times, adults go back to school in hopes of pursuing a more promising a different career path. Examples include: Elementary School Teachers, Teacher's Aides, College Professors, Principals, Deans and Custodians.

International Business $60,000 +
When business isn't being done here it is being done overseas. This career will not only survive but thrive during tough times.

Bankruptcy Law $75,000 +
Unfortunately, many Americans simply can't survive when a cut-back or lay-off occurs. Bankruptcy numbers increase dramatically during a recession.

Debt Management $50,000 +
In a desperate attempt to avoid bankruptcy, debt management offices become flooded.

Grocery $30,000 +
People stop eating out and start eating in, and people need food to survive. Examples include: Butchers, Managers, Cashiers and Baggers.

Internet $25,000 +
Why go to the store when you can shop at home for less? Further, people have a lot more free time on their hands and as statistics show, a majority of that free time is spent online.

Research & Development $75,000 +
Businesses will always invest money into finding better, faster, more cost-effective ways of producing a product and providing a service, especially when business isn't that great.

Casinos $50,000 +
Regardless of how tough the times are, gambling remains an addiction. In many cases, people gamble in hopes of striking it rich during a tough time. Examples include: Owners, Hostesses, Bartenders and Security.

Pharmaceuticals $75,000 +
Doctors will continue to write prescriptions and people will continue to take them. Anti-depressants are of the top prescribed during a recession. Examples include: Pharmacists and Drug Company Representatives.

Liquor Sales $50,000 +
For many Americans, when the times are tough they turn to alcohol in hopes of drinking away their problems. Examples include: Counter-Sales and Bartenders.

Auditor $50,000 +
When you can't find any other way to save money, you do it around tax time which is why auditors are always in demand, especially during tough times.

Public Safety $50,000 +
When the times are tough, people get tough too. Crime rates experience a slight increase, creating a demand for Police Officers and Fire Fighters.

Careers to Avoid

Sales $50,000 +
While a career in sales may pay well, they only pay well when things are being sold. When money starts to get tight people refrain from spending any money they don't have to.

Real Estate $50,000 +
Most Americans can't afford to live never mind shop around for a house. Regardless of how low financing rates go, you can't take advantage of them with destroyed credit!

Mortgages $50,000 +
If people aren't buying houses they don't need to apply for a mortgage.

Retail $30,000 +
These jobs are most readily available because people are being forced to leave the industry. Most retail jobs support sales made from disposable income. Examples include: Clothing Stores Cashiers Electronic Store and Department Store Cashiers.

Automobile Sales $30,000 +
Most Americans are refraining from driving, never mind purchasing a new car. Carpooling and city transportation become a more practical alternative for most individuals.

Construction $50,000 +
People are downsizing not upsizing, and going for old not new. Whether its housing or additions, not much is being built during a recession.

Marketing $50,000 +
While it may be the most needed, the Marketing departments are usually the first to go when companies attempt to cut-costs.

Travel $30,000 +
Traveling to work is enough of a problem, never mind hopping on a plane or planning a cruise. Even if someone wanted too, taking time off from work could cost them their job. Examples include: Flight Attendant, Hostess, Travel Agent or Cruise Ship Worker.

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