U.S. and the “R” word

Lots of talk has been bandied around in the financial media in recent weeks about recession. Some analysts say it is better to assume a recession started in December, which will conclude around midyear. Others say the economy will narrowly skirt recession, while others say it’s just semantics.

Recently released 2007 fourth quarter U.S. gross domestic product (GDP) data plunged from 4.9 percent in the third quarter to a mere 0.6-percent increase in the fourth quarter.

“The domestic economy ground to a halt in the fourth quarter,” Credit Suisse’s Basile says.

While the National Bureau of Economic Research (NBER) is the independent organization that “officially” calls the start and end of recessions in the U.S., there is generally a lag before it makes its proclamation.

Some economists define a recession as two consecutive quarters of negative economic growth, but Jones says the NBER uses a looser definition.

“Recession happens if a significant decline in economic activity spreads across the country and lasts more than a few months,” he says.

According to that definition, Jones says the U.S. had already entered a recession in December, which he expects to continue through August — an eight-month contraction. That compares to a typically referenced 10 month average.

“The latest moves in housing, the labor market, and concerns regarding tighter credit are all working against the economy,” Basile says. “It looks like we are in the midst of a slowdown and it will be growing pretty slow in the first half.”

“It’s semantic whether we are there or not,” Coleman adds. “It is certainly a very slow growth period.”

One wild card is the government’s economic stimulus plan. In late January the House of Representatives passed a $146-billion package of tax breaks for consumers and businesses, and the plan is now under debate in the Senate. Quick passage of a package is widely expected in this election year.

Wachovia economists expect the U.S. economy to narrowly skirt a recession, with forecasts of 1-percent growth in the first half, ratcheting up to 2 percent or more in the second half.

“The fiscal stimulus package should add one percent,” says Mark Vitner, senior economist at Wachovia.