Recession Round-up: Partly Cloudy, 35.5% Chance of Falling GDP

The U.S. House voted yesterday to explode the FY2008 deficit by $146 billion. Now the Senate considers whether to pass the bill as is, load it with gifts for more voters, or play true fiscal conservative and let the country ride out whatever economic trouble is coming without the extra life preserver. What to do?

1. The International Monetary Fund thinks the stimulus package is a good idea and will help the U.S. economy avoid a recession. The IMF sees economic growth for the U.S. declining from 2.2% in 2007 to 1.5% in 2008, down from its October prediction of 1.9%. The IMF also sees 4.1% growth for the world economy in 2008, down from 4.9% in 2007. Last July , the IMF predicted 5.2% growth in 2008, then revised that guess down to 4.4% in October [Christopher S. Rugaber, AP, "IMF Sees Slowing World Economy in 2008," BusinessWeek.com, 2008.01.29].
   
2. The U.S. economy did hit the brakes hard last fall: after posting relatively vigorous 4.9% growth in the third quarter, fourth quarter GDP growth was only 0.6%, half the rate economists had been predicting. Consumer spending grew "only" 2% ["Fourth-Quarter GDP Nudges Up 0.6%; 2007 Growth Slows to 2.2%," FoxBusiness.com, 2008.01.30].
3. The core inflation rate, that silly statistic that excludes food and energy, was only 2.4% for 2007, the lowest rise since 2005. Unfortunately for those of you who choose to consume food and energy, food costs rose 4.9% and energy costs rose 17.9%. Overall inflation for 2007: 4.1%, biggest jump since 1990 [AP, "2007 Inflation up by Largest Amount in 17 Years," MSNBC.com, 2008.01.16].
   
4. Dr. Mankiw points us to a January 2008 study by Congress's Joint Economic Committee which says that the probability that the economy is in recession right now is 35.5% [PDF alert!]. This figure comes from the "employment recession probability index," a stat based on weekly unemployment insurance claims. The good news: we don't call it a recession until the index reaches 65%. The bad news: last month the index stood at 10%.

Recession or not? The numbers aren't happy, but they aren't negative. The economy isn't shrinking; it's just not growing as fast as some would like. Whether that constitutes a $146-billion crisis is now the question for the Senate.