Tags: recession | nber | frankel

Recession Uncertain, says NBER Economist

Thursday, 28 Aug 2008 08:45 AM

Many economists now say recession is a certainty, and perhaps has already begun. Not Jeff Frankel.

It's interesting because, besides being a former Clinton adviser and now Harvard professor, Frankel also is a member of the committee which officially determines when recessions start and end, part of the National Bureau of Economic Research (NBER).

"It's really hard to say if we're in a recession, because different indicators point in different directions," Frankel told Moneynews.com in an exclusive interview.

"One of the most important indicators is employment. If you go by that, recession clearly started around December, because jobs have been going down, down, down."

Unemployment rose to 5.7 percent in July, with non-farm payrolls dropping 51,000 that month.

But GDP, probably the most important statistic, "has basically been positive," notes Frankel.

"Some people think the definition of recession is two straight negative quarters of GDP. That's wrong: it's the NBER committee that says whether there's recession," he points out.

"But, up until a few weeks ago, when fourth-quarter GDP was revised downward, there wasn't one quarter of negative GDP." The economy shrank 0.2 percent in that quarter

On Thursday, the government reported that U.S. economic growth had surged 3.3 percent in the second quarter, revised upward from the 2.7 percent initially reported.

"Possibly recession started in December, but all we can say now is that there is a 50-50 chance of recession or a little greater," Frankel says.

"If we do go into recession, it could be quite serious. And obviously there has been a seriously negative impact across the country already."

Frankel maintains that both the Federal Reserve and the Bush administration made mistakes before the credit crisis broke out about a year ago.

"But I wouldn't be especially critical of the Treasury or especially the Fed over the past year," he says.

"They have dealt with the financial crisis and the economy as well as could be expected. Some people feel that, with the freezing of financial markets lasting a year now, policymakers should have done more," Frankel explains.

"They say the Fed should be easing more or the rest of the government should be stepping in to aid the housing industry in various ways."

Others believe the Fed should be tightening credit. "They are pointing out that inflation is high, commodity prices are high," Frankel notes.

"It's not an easy call. I think they've done it about right. But I think we're paying the price in part for very serious policy mistakes made earlier."

Frankel says that the dollar's drop to a record low against the euro this summer was overdone. But he points out that the dollar's decline had both pluses and minuses for the economy.

The euro has slid since hitting a high of nearly $1.60 in early July to a range just above $1.47 now.

"The depreciation of the dollar over the last few years has been a godsend in that it's helped stimulate exports a lot," Frankel says. "And exports have been the sole engine keeping the economy growing."

"But the weak dollar has its disadvantages, which we're beginning to see now, namely upward pressure on inflation, especially commodity prices, and on interest rates."

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Many economists now say recession is a certainty, and perhaps has already begun. Not Jeff Frankel.It's interesting because, besides being a former Clinton adviser and now Harvard professor, Frankel also is a member of the committee which officially determines when...
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Thursday, 28 Aug 2008 08:45 AM
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