Sick of the 'R' word
Is the economy in a recession or not? Who cares? The economy is clearly in rough shape and debating about word choice misses the point.
NEW YORK (CNNMoney.com) -- Are we in a recession or not? And if we are, when did it begin?
I don't know about you, but I'm tired of the recession debate. Does it really matter if this current economic period ever (or never) gets labeled a recession?
Clearly, the economy is in the middle of a very rough patch. Housing prices have slumped. The credit markets are a mess. Energy and food prices have skyrocketed over the past year. The unemployment rate is rising and the economy has been shedding jobs this year.
Even if it weren't technically a recession, that would be of little consolation to those struggling to pay bills or find work. Bottom line: the economy is in poor shape for many Americans and that's what matters.
What's more, the group that makes the official call on recessions, the National Bureau of Economic Research, tends to take its time on determining recessions. So if it the NBER ever does call this a recession, it might already be almost over.
"To think this isn't a recession would be foolish. But by the time the pronouncement comes, it will be too late to strategically do anything about it," said Scott Colyer, CEO of Advisors Asset Management.
The NBER didn't officially declare the beginning of the 2001 recession, which lasted from March until November of that year, until November. And the NBER didn't pronounce that the recession had actually ended until July 2003.
That's not a criticism of the NBER, mind you. It should carefully scrutinize all available data instead of rushing into judgment. But that underscores how silly it is for people to try and guess if or when the NBER will make a recession call.
At this point in time, it's far more important to try and determine where the economy is headed next instead of staying stuck on how to characterize the economy's current state or obsessing about how we got here.
"There are many questions - profound ones at that - which will take time to answer and then, so late, be of little avail," wrote Val Jensen, founder of investment firm Jensen Capital Management in a recent note to its clients. "Finance is a forward-looking business, never patient enough to tidy up yesterday's messes."
Along those lines, loyal readers of this column will know that I've been trying to look ahead instead of backward. And I've been more optimistic about the chances of a recovery than many economists and colleagues in the press (including several on our staff.)
And I still think that there are some positive developments lately that lead me to believe that what the economy is experiencing is a normal cyclical slowdown after several years or economic growth and not a sign of impending doom.
OIl prices, after hitting a record high in July, have pulled back and the price of gas has come down along with it. The dollar has strengthened. Demand for exports has helped hold the economy up and many U.S. corporations outside of the banking sector still have incredibly strong balance sheets.
Finally, the most recent round of data about home prices and home sales suggest that the real estate market, while far from healthy, may be finally showing some signs of stabilizing.
With all this in mind, Colyer compared the current state of the markets and economy to the shape of an old-style bathtub. When you first stick your foot in, you have a ways to go before you hit the bottom and you're likely to stick around the bottom for awhile once you're in. Finally, you need to be really careful when you try and step out.
Using that analogy, the best thing for people to do now is try and figure out how to get out of the bathtub, not labor on about why and how we found ourselves in the bathtub.
And we definitely shouldn't waste time trying to figure out if we should call it a bathtub in the first place.