We know by now that the old rule of thumb for recession – two consecutive quarters of negative growth in gross domestic product (GDP) – is out the window. Still, at least there were two quarters of contracting GDP during the last recession in 2001. This time around, we just can’t seem to get a negative print — at least, not yet.
Conventional wisdom right now holds that when the National Bureau of Economic Research – the outfit tasked with declaring recessions – finally determines when the current recession began, they’ll choose December or January. (The NBER does not define a recession in terms of two consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.)
And yet when the government prints its estimate of first-quarter GDP next Wednesday, it’s highly unlikely the number will be negative. Today’s economic data further reinforces that scenario. Jobless claims, which typically hover above 400,000 per week during recessions, dropped by more than thirty thousand last week to a seasonally-adjusted level of 342,000, the Labor Department said. Even the smoother four-week average fell to 370,000.
Meanwhile durable goods, a key gauge of the manufacturing sector’s health, dropped by 0.3% in March from the previous month, the Commerce Department said - but much of the weakness was in the auto sector. Excluding transportation, orders were up 1.5% during the month. And the component of the report that feeds into GDP – known as core shipments – rose by a strong 1.2%.
That, combined with strong inventory growth, prompted Lehman Bros. economists to raise their estimate of first-quarter GDP by nearly half a percentage point to 0.7%. Macroeconomic Advisers, a GDP-tracking firm, raised their estimate of first-quarter growth by two-tenths to 0.4%.
I've said all along that the housing mess will not cause a recession. Monetary policy is powerful medecine. Taken in excess over a long period of time it causes other illnesses such as inflation but in the short term, it works.