So, What Is a Recession?

Maybe times have been good for so long that we need to redefine the term.

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Look, I know the economy is weak. But if it never has a down quarter, then it never went into a recession. Here is what Robert Hall, who heads the recession-dating committee at the National Bureau of Economic Research, said yesterday: "It seems unlikely that we would ever declare a peak date when real GDP continued to rise."

You have to admit that given $120-a-barrel oil, a severe housing recession, and a nasty credit crunch, it is quite amazing that America's growth machine is running at all right now. And it is just as amazing that damage from the housing and credit crunch has been relatively confined to those sectors, as important as they are. As market strategist Ed Yardeni notes this morning (boldface mine):

There is no doubt that S&P 500 operating earnings are in a recession given that they plunged 9.3% and 30.8% y/y during the third and fourth quarters of last year. The latest reports and consensus estimates suggest that profits fell 14.4% during the first quarter of this year. Actually, this profits recession is very much limited to the Financials sector and the Homebuilding industry in the S&P 500. Removing these two reveals that profits rose 15.9% in Q4 and around 12.0% during Q1. The resilience of "core" profits and of the economy in the face of the worst credit crisis since the 1930s is impressive indeed. One of the main reasons, of course, is that the US economy and corporate profits have become increasingly coupled with the global economy, which continues to grow at a solid pace. This has been an especially positive development for profits of nonfinancial corporations with growing sales overseas and rising exports to foreign customers. These companies are increasingly decoupling from the US economy.