Recession? Maybe, Maybe Not

I'm starting to think the whole recession guessing game is such a crapshoot that it's almost not worth worrying about (and quite possibly not worth putting the federal government -- and our kids -- another $150 billion in debt). My financial feed offers two opposite views on what the current employment figures mean for the overall economic picture. First, the Wall Street Journal reports that the loss of 17,000 jobs from the payrolls in Janaury means the odds of a recession have gone up:

The overall jobs decline in January suggested an unsettling scenario: The labor market, which had been resilient in the face of the subprime-mortgage crisis and the credit crunch, may now be succumbing. "When push comes to shove, the final linchpin is the employment number," said John Silvia, chief economist at Wachovia Corp. "When that number falls, you're in trouble."

"If this decline is sustained over the next six to nine months, it is very likely this period will be declared a recession," he said [Kelly Evans, "Jobs Data Add Fuel to Recession Fears," Wall Street Journal, 2008.02.02].

But while the economy lost jobs, the January's unemployment rate dropped a tenth of a percentage point to 4.9%. My newest favorite Harvard professor, Greg Mankiw, gets an e-mail from his pal Tim Kane, an economist who works for Congress's Joint Economic Committee. On Monday, Mankiw cited Kane's "employment recession probability index" as saying the probability that we are in a recession right now is 35.5%. Not so fast, Kane says today:

The 4-week moving average of initial UI claims was reported yesterday at 325,750, which is 17,000 lower than 4 weeks ago and essentially unchanged from the October average. Alone, trends in UI claims suggest a 4 percent recession probability. The unemployment rate is 0.1 points lower than December, but 0.1 higher than three months ago, suggesting an 8 percent recession probability. Combined, this yields an overall recession probability of 6 percent [Tim Kane, personal e-mail to Greg Mankiw, reported by Mankiw, "Interpreting the Employment Report," Greg Mankiw's Blog, 2008.01.31].

The economy sheds jobs for the first time in four years, but the math says there's now only a 6% chance that we're in a recession. Do we need more mathematicians in Congress... or more pink slips for mathematicians?

Well, let's not lose too much sleep over it. My wife is planning a really big garden this year, and we live by Lake Herman, so if even if the economy goes way south, we can live off sweet corn, tomatoes, and bullhead.