Are we in a recession? No one knows. Indeed, it's literally impossible to know.
A recession is six consecutive months of negative economic growth. At most, December 2007 would be our first month, so we wouldn't know until sometime in June 2008 if, by the end of May 2008, we'd been in a decline for six straight months. So no matter what anyone tells you, we can't know if we're in a recession yet.
The Decemberwere poor. Obviously, housing is weak. Autos look to be softening (good time to buy a ). Even most commodities are off their peak.
More important than any of these to us economists, however, are two factors. First, because of repeatedly being stung by losses in real estate lending, lenders are reluctant to lend, which is causing a slowdown in economic activity. Second,has been sluggish for the last several months. This is often a signal of a weakening economy.
I want to be honest here (and everywhere): This slowdown is happening faster and harder than I thought it would. I was too optimistic. My optimism was based on a belief that thewould act more aggressively than it has in fighting the slowdown. It didn't, and we're paying the price.
Let's hope that, the chair of the , has learned his lesson. Hopefully, he'll now plunge in with both feet to get a lot of liquidity into the system, and reassure lenders that he'll backstop them and not let them fail. He's now perceived as weak, and he'll have to act aggressively to get the ball rolling again. But he can do it.
For now, however, assume that he's doing too little too late, and that we'll have a recession. Here, then, are a few salient facts about postwar recessions, which I've discussed before.
There have been 10 recessions in the last 63 years. The average length of these downturns has been about 10 months. The average decline in economic activity from peak to trough was about 2.5 percent. No decline has been worse than about 3.7 percent.
In the past 25 years, there have only been 2 recessions, which is an extremely good record. The two recessions -- in the early 1990s and the 2000-2001 correction -- have been extremely brief. The really severe recessions of the postwar era have been engineered by the Fed to fight inflation -- in the early 1970s and early '80s.
When the Fed is fighting to promote expansion and not to rein it in, recessions tend to be brief. Real consumption doesn't fall for more than a few months in such cycles. It would be almost unheard of for there to be a year-on-year fall in retail sales from 2007-2008 if the Fed is actively liquefying the economy.
Unemployment always rises in recessions. The degree of the rise is usually modest, generally only about 2 percentage points, although some -- like the one engineered by the Fed in the early Reagan years -- have gone as high as 4 points. The average length of involuntary unemployment during recessions is about six weeks.
There is some good news in here.
Even in a recession, more than 90 percent of workers who want to work will be employed. Even in a recession, most businesses will make a profit. Even in a recession in this era, more than 10 million men and women will need cars and trucks. Many millions will need new homes. Tens of millions will needand . In the United States, even in a recession, there are plenty of people with money to spend.
Those who tend to their work, who get to the office or showroom or shop early, stay late, work hard, stay on the phones dialing for deals (as my pal, Barron Thomas, puts it), will make money. Those who stay sharp and make a point of befriending their clients will make money. Yes, some extra effort will be needed, but it'll pay off. There's still money to be made, even when the economy itself has slowed down.
It's the guy or gal who puts in extra effort who stays ahead and even prospers when the economy is in a slowdown. The easygoing, laid-back time-servers get tossed overboard.
Stay Hungry (Not Literally)
There's another key truth about recessions: They always end, and the economy always goes on to a new plateau. It may take a while, but the stock market always moves on to a new high.
So stay hungry. Work harder. Dig deeper. Keep investing in broad indexes. You'll come out all right on the other side.