Third quarter GDP came in today at -0.5%, which is down from the -0.3% initial reading we got October 30. There’s one more revision after this. Today’s -0.5% is the largest quarterly decline since the tail end of the last recession in 2001. GDP growth for the previous three quarters have all been revised downward after their initial readings. For the past three quarters the Final GDP growth figures are as follows, and 3Q preliminary is shown as well:
4Q2007: -0.2% (final)
1Q2008: +0.9% (final)
2Q2008: 2.8% (final)
3Q2008: -0.5% (preliminary)
A recession is defined as two consecutive quarters of negative GDP growth, but all the revisions are why it’s so hard to call a recession until after the fact. Looking at the past few quarters of GDP data, it’s interesting to see that the NBER won’t be calling a recession since Q1 squeaked by as positive.
The group bases its assessment on indicators including GDP, employment, sales, incomes and industrial production, and usually takes six to 18 months to make a determination. According to the NBER, the last recession lasted from March to November 2001.
Jeffrey Frankel, a member of the NBER panel, in a Nov. 10 Bloomberg Television interview said the U.S. is entering “the steep part” of what could be the worst recession since World War II. Martin Feldstein and Robert Hall, fellow members of the committee, have said the economy is in a recession.
Yet they won’t call it on a technicality. While GDP data (and official definition) protects more slippery politicians and pundits from admitting we’re in a recession, most people agree that we’re feeling the pain. Today’s Consumer Confidence report from November showed a modest improvement from a record low in October, but we won’t really know what consumers think until they speak with their wallets when the holiday shopping season starts Friday. And the pain in the job market is certainly real, with 6.5% unemployment and 1.2m jobs lost year to date.