According to a recent CNN poll, nearly 3 out of 4 Americans think that we are in a recession. Naturally, I figured it would be interesting to pose the same question to the readers here to see where our generation stands in terms of thinking about a recession. But first, we have to define recession.
The true definition of a recession is a decline in GDP for two consecutive quarters. That being said, if we look at the last quarter of 2007, the real seasonal adjusted GDP was 0.6. It was positive, but just barely. We’re closing in on the first quarter of 2008, and it will take some time before we know exactly what has been going on, but experts believe GDP to be very low or negative. While this alone wouldn’t immediately classify as a recession, this strict definition is just the tip of the iceberg.
Effects of a Recession
All definitions aside, an economy that is lacking growth is felt in many areas. It affects employment, financial markets, corporate profits, and much more. Even more important is the effect of inflation or deflation during this time, which can definitely be felt by individuals. These are the effects that we all feel on a daily basis, and it doesn’t matter if we don’t meet the two consecutive quarters of negative GDP or not, these are real.
So, what do you think? Have you begun to feel the effects of a recession, or are you hearing all of this talk in the media without noticing many negative impacts personally?
Author: Jeremy Vohwinkle
My name is Jeremy Vohwinkle, and I’ve spent a number of years working in the finance industry providing financial advice to regular investors and those participating in employer-sponsored retirement plans.
you are missing an option: who cares? i don't care if we are or we aren't. i wish people would stop getting hung up over it. ok, so if you feel the economy is bad right now, then let's just say we are in a recession. if not, then say we aren't. all this self fulfilling prophecy is useless and making the markets all jittery. of course there are other reasons for the jittery markets, but just admit that we aren't or we are and let's get on with spending more money.
A recession has a definition. We ARE NOT in one right now and if one starts during the first quarter of 2008, we won't know for sure until late summer!
Folks, I'm only saying that feelings have nothing to do with the *measurement* of GDP. That's what a recession is, nothing more than a measurement of the economy. So if you "feel" down about the economy this Q1, how can you possibly expect that to effect how NBER measures what went on economically? I find it more plausible that down feelings this quarter will affect Q2 or even Q3. Can't turn the economy on a dime; it's a large animal.
So if you really want to gauge the Q1 economy (i.e. find out pre-NBER report, whether we're in a recession now) based on people's feelings, wouldn't it be better to ask this:
"Did you feel last year that the economy would contract in Q1 2008?"
By definition, we're not in a recession. Generally, it is not proclaimed that we're in a recession until we're half way or more out of it. It's the nature of the beast.
However, I can say that we're in a pretty bad place. Housing, credit, consumer spending, employment, growth, inflation -- all on the downturn. Housing and the subsequent credit crunch have really taken the wind out of the wealth sails -- people feel poorer and take the appropriate actions, like cutting discretionary spending.
Let's hope this all unfolds pretty normally rather than the protracted recession that many economists are predicting. My question is, where were they 6 months or a year ago? Yeah, they were saying "no recession in sight."
Steve, I think consumer/investor sentiment has much more to do with how things play out than what a bunch of statistics and numbers about the economy do. If people feel like money is tight, they won't spend it, or spend it on something different than what they otherwise would have.
If there is a sense of insecurity in the equities market, people flee from stocks and mutual funds and stash everything away in cash or bonds.
If there are uncertainties with employment and in real estate, people aren't going to be as likely to move or look for new jobs.
All of these behaviors are driven by personal perception of their situation, and what NBER says one way or another won't change that. Of course, their decisions and statistics can further accelerate these behaviors, but we may never meet the exact definition of a recession, but some people are certainly behaving in a way that says they are.
Steve since this looks to be a consumer led recession I think the feelings of consumers are totally valid.
What do feelings and fuzzies have to do with whether the NBER at some point in the future determines that 1Q2008 was either the first or second in a succession of 2 or more quarters of negative GDP? ;-\ My point is that feelings are not good predictors of statistics and statistics don't respond to feelings.
I don't think we've hit a recession yet. I don't see a pull back in spending, driving, grocery shopping and the like. People are less optimistic in general, but I see more complaining than an actual decrease in spending.
We have been in recession for over 6 months now. I was lining up to buy a house in San Francisco in August 2007, and wanted to get a loan for the tax benefits. I have a good FICO score, make $200K a year and have $1.2M in cash in a high-interest savings account, and yet all I could get for a $600K loan was a 15-year interest-only loan at over 7%, i.e. worse than just renting. Naturally I dropped my offer, and I can't imaging the economy won't suffer severely from the credit crunch.
I voted "Yes" not because I've noticed increased grocery prices (don't shop enough to notice), or I've seen layoffs where I work, but because I just have a general feeling in my gut that Things Are Not Good. Plus, I've been seeing more empty storefronts at the strip mall near my home. In fact, one bargain department store went out of busy 2-3 years ago, and its old building is STILL empty. Doesn't give me the warm fuzzies.
Deng it, I accidentally hit yes but I meant to say no. I'm young, so all definitions aside I don't feel like we're in a recession. Things seem normal in my neck of the woods. There are more short sales and foreclosures, but people are still buying it up like crazy here in San Francisco. Some areas are still appreciating. My last few offers on behalf of clients were met with a wave of higher offers. I don't notice people driving less and I don't hear about unemployment in my circle. All the negatives I hear in the news and blogs, but I have yet to see it myself. I do feel that recession is on it's way, but I don't think it has reached us on a personal level yet.