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April 28, 2008

Recession - Is it or isn't it?

With all the media warnings on the state of the U.S. economy, it is hard to get a good idea what a recession is and what it might mean for Hoosiers.  

The formal definition of a recession is two consecutive quarters of negative economic growth.  We haven’t had even one quarter where real growth dipped below zero and the weaker than usual employment data of the first three months this year won’t be enough to pull the economy into a recession.  The Federal Reserve has predicted slow, but positive growth for the first quarter, and we’ll be getting our fiscal stimulus checks in the middle of the second quarter.   

Of course, the recession gurus at the National Bureau of Economic Research have the flexibility to define a recession a bit differently than they have traditionally.  So, as they did right after 9/11 they might claim a recession when economic performance falls briefly, but sharply.    

There’s lots of feeling we are in a recession right now, but the data isn’t here yet.  My personal recommendation for all you recession watchers out there is to save your feelings for more important things than the pronouncements of the NBER.  Stick to the data and reserve your emotional judgment for enjoying this long awaited spring.    

I try to convey this message to my students here at Ball State.  They are smart kids, but suffer from that common malady of the young – lack of experience.  My grad students can only remember one recession, that mild blip on 2001.  My freshmen quietly endured that one in elementary school.  You really have to be in your mid-forties to have experienced a significant recession as an adult.  Even the 1990-91 recession lasted about as long as most of us infantrymen did without a shower in Desert Storm. 

In the end it isn’t the boom and bust cycle that holds much sway over our lives.  It’s the long-term trend of the economy, the regional differences in growth and the types of skills that are needed in a global labor market that determines our economic wellbeing.    

While a recession certainly isn’t yet apparent in Indiana, we are experiencing a range of economic effects. Communities with large numbers of workers without 21st century skills have been rocked by regional stagnation or decline.  The economic unease that infects many Indiana communities isn’t due to the failure of markets or economic policy.  We have solid policies, and the outcomes that some of our more beleaguered communities see are the appropriate response of markets.  But that’s a small part of Indiana’s story.  

In places where workers have 21st century skills, Indiana is a booming place and our economic policies are among the soundest in the nation.  Our business taxes, the bane of new capital formation, are among the nations lowest, our economic and community development efforts smart, and our transportation infrastructure superb.    

So, don’t fret about a recession.  Spend your time instead making sure your kids, and their friends get those 21st century skills.

Link to this commentary: https://commentaries.cberdata.org/116/recession-is-it-or-isn-t-it

Tags: recession


About the Author

Michael Hicks cberdirector@bsu.edu

Michael J. Hicks, PhD, is the director of the Center for Business and Economic Research and the George and Frances Ball distinguished professor of economics in the Miller College of Business at Ball State University. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.

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