Recession or depression? There's a case for both

As the nation struggles to name our ongoing economic pain, we may be settling on The Great Recession.

Friday’s jobs report — that U.S. employers cut 651,000 jobs and the unemployment rate leaped from 7.6 percent to 8.1 percent in February — did nothing to spark hope for an imminent end to the recession that began in December 2007.

Unemployment now stands at its highest rate since 1983, and February was the third straight month that payroll job losses exceeded 600,000.

All expectations are for April Fools’ Day to mark the longest recessionary period since the Great Depression. For now, though, we don’t know for sure if we’re in a depression, headed for a depression, or simply in the longest, deepest recession since the 1930s.

"We’re probably in a depression now, but it’s not going to be acknowledged until years go by," said Peter Morici, an economist at the University of Maryland.

Unlike "recession" — defined either as two consecutive quarters of economic contraction or a statement from the National Bureau of Economic Research based on detailed monthly data — "depression" isn’t as easily defined.

Some economists say a depression occurs when there is a 10 percent per-person decline in consumption or gross domestic product. Others say a decline must last for three years to be a true depression.

Even in the wake of a startling 6.2 economic contraction in the fourth quarter, the 15 months of employment losses don’t yet qualify.

Other economists say it’s a depression when a “sustained recession” causes people to sell off assets to pay daily expenses.

By that definition, we’re in a recession for some and a depression for others, particularly the long-term unemployed. About 2.9 million workers have been job hunting for 27 weeks or more.

February job losses were widespread. The goods-producing sector cut an estimated 276,000 jobs since January, while service sector payrolls were slashed by 375,000.

No matter where we are in the economic cycle, the grim numbers have sent economists digging into their bag of semantics. In addition to “recession” and “depression,” some are harking back to the “panic” word used in the 19th century.

Some note that “recession” wasn’t commonly used until “depression” became the reference point in the 1930s.

"When the economy collapsed again in 1937, they didn’t want to call that a new depression, and that’s when recession was first used," said Robert McElvaine, a history professor at Millsaps College in Jackson, Miss.

Semantics aside, our economic malaise reflects the sad state of consumer confidence. As measured by the Conference Board, it fell last month to an all-time low for the survey, which dates to 1967.

Job losses, cratering stock prices and plunging home prices have combined to cause consumers to rein in spending. In turn, that caused business revenues to decline and more job losses, which perpetuates the "negative feedback loop."

Perhaps the brightest glimmer of hope Friday was that job cuts declined slightly from what may have been a peak in December — from 681,000 then to 655,000 in January to 651,000 in February.

Other modest positives were found in the education and health services sector, which gained 26,000 jobs last month, and government, up 9,000.

Nonetheless, payroll employment has plummeted by 2.6 million in the last four months, and the number of job hunters increased by an estimated 851,000 to 12.5 million. About 4.4 million payroll jobs have been lost since December 2007.

"We’re more than 6 million jobs short of where we should be," said economist Larry Mishel at the Economic Policy Institute. "Since December 2007, we needed to have created 1.8 million jobs to just keep pace with new entrants in the labor force."

Part of the challenge lies in addressing the "hidden" unemployed. The number of people working part time — because they couldn’t find a full-time job — soared by 787,000 to 8.6 million last month.

And the bureau’s highest alternative measure of unemployment jumped to 14.8 percent, a record for the statistical series. That measure includes involuntary part-timers and discouraged workers.

Historically, the labor market bottoms out after recessions end, sometimes long after. After the brief 2001 recession, employment did not rebound until 2003.

One way to search for turnaround signals is to watch contingency, contract and temporary hiring. That’s a harbinger of payroll action because employers hire temps when business begins to increase instead of immediately adding employees.

Unfortunately, the American Staffing Association charted a sharp decline in temporary-help hiring. Fourth-quarter staffing company employment was down 19.5 percent from the same quarter a year earlier.

When "the bottom fell out of the economy," said the staffing association’s president, Richard Wahlquist, "demand for temporary and contract employees shrank at an unprecedented rated."

Dave McDowell, president of Mid-America Personnel and Staffing Services, noted that regional demand for hourly industrial placements is off as much as 40 percent from this time last year.

Another job market indicator, the Society for Human Resource Management’s Leading Indicators of National Employment report, also issued Friday, was "bleak" for March.

More than twice as many human resource managers told the survey that they will cut payrolls in March (34.9 percent) than hire (15.3 percent).

So, how certain are we that the economy will get worse before it gets better?

Robert Barro, a fellow at Stanford University’s Hoover Institution and an economics professor at Harvard University, researched 209 worldwide stock market crashes and 59 depressions and concluded that the United States has a 20 percent chance of depression.

How to keep the recession from being a depression is one point of the Obama administration’s recovery package.

"So far, monetary policy has been stimulative. Now we hope, by midyear, that fiscal policy will make a difference," said Charles Krider, a business professor at the University of Kansas. "The real key is making a difference in consumer confidence. We need confidence along with correct policies."

But few expect any sign of a turnaround before the end of this year.

And Anirvan Banerji, with the Economic Cycle Research Institute, said there’s always a possibility that cures from the past won’t work in today’s "fast-moving, highly leveraged, highly networked economy."

Like Morici, Banerji said we’ll need to wait and see what to ultimately call this economic cycle.

"The Great Depression didn’t start out as a depression," Banerji said. "It started out as a recession."

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