MARCH 2008: ECONOMIX
Shoot the messenger this time
BY TOM
POTIOWSKY
|
We love a bad news story. Crime and scandal sell newspapers and
capture TV viewership. Back in 1994, Oregonians (and the
nation) were glued to the TV watching O.J. Simpson driving down
the highway in a white Ford Bronco. While everyone was debating
whether O.J. committed the murder, I was wondering what would
happen to the sales of white Ford Broncos. Such is the life of
an economist.
The media have a new bad news story: the economy. The national
broadcast media mentioned the economy or recession in 54
stories during the first two weeks of this year. Recession
stories outpaced optimistic economic news by 4 to 1. The
Economist has an informal R-word index that counts the number
of times that The New York Times and Washington Post use the
word “recession” and calculates a quarterly rate.
The index was quite low for the past few years but started to
rise in the second half of 2007. It is now soaring and should
match the same rate seen at the start of the 2001
recession.
Turn to any newspaper, TV channel or Internet news site and
doom and gloom are plastered everywhere. “Private-sector
shocker: Key ISM gauge takes a January polar-bear
plunge.” “Housing market meltdown.”
“Subprimes batter banks’ balance sheets.” It
goes on and on. A Washington Post-ABC News poll conducted Jan.
30 to Feb. 1 found that the economy has taken over as the No. 1
concern from the war in Iraq. Eight in 10 Americans describe
the economy as “not so good.” So much for
“scientific” polls. “Not so good”
— but can you tell me how you really feel?
The most alarming result from this poll was that half of the
respondents said the U.S. economy is in a long-term decline.
The only rationale I can chalk this up to is media hype,
because people generally do not know the definition of a
recession. The National Bureau of Economic Research, the
official recession dating organization, uses this definition: 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.
What the average person on the street knows is that the news
media are ablaze with “recession” and descriptions
of an economy teetering on a cliff edge, ready to fall into a
dark, bottomless abyss of eternal damnation, or something
worse.
Regardless if we want to declare that the U.S. economy is or
is not in recession today, the media’s doom and gloom
further weighs on the consumer’s sour economic
outlook.
I’m not suggesting that the media recession hype can
cause a recession. Rather, the media could marginally decrease
consumer spending, beyond what other economic forces are doing.
A study from the San Francisco Federal Reserve Bank argues that
more stories concerning recession scenarios are associated with
lower measures of consumer sentiment. This, in turn, could
cause lower consumer spending.
And here’s some news you don’t hear much about.
Expansions last longer than recessions. From 1945 to 2001,
there have been 10 business cycles in the U.S. economy. The
average length of recession is 10 months, and the average
length of expansion is 57 months. After the 1980-82 recession,
expansion periods lasted 92 months and then 128 months. If the
present expansion is truly at an end in January, we had 73
months of growth.
As for Oregon, we generally follow the U.S. economy. But the
degree to which we feel the same pain has varied across
recessions. The 1990-91 recession was relatively mild in
Oregon, while the 2001 recession hit us harder than almost any
other state.
What about this time around? Our housing market has been hit,
and wood products are experiencing one of the worst downturns
in history. But Oregon was a relative latecomer to the housing
run-up, and although housing starts are down, price
appreciation is still positive, and one of the highest in the
country. Oregon also has a relatively lower amount of subprime
mortgages and foreclosures to date. Oregon will go the way of
the U.S. economy, but this time around the impact may not be as
great as back in the early 2000s.
What to make of all this? Discount the media, prepare for some
harder days ahead, but recognize that stronger economic times
are the norm, not the exception.
Tom Potiowsky is
Oregon’s state economist.
Have an opinion?
E-mail feedback@oregonbusiness.com
