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May 23, 2008

Is it still a recession?

The government recently said the economy grew in the first three months of the year, although at a very slow pace. How can the economy be growing if we're in a recession? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Indeed, the broad measure of growth in the economy, something we economists call Gross Domestic Product, did expand in the first three months of this year by .6 percent. That's the same rate as it expanded in the last three months of 2007. So this indicates that we are growing - the economy is expanding - but at a very slow rate. Now there used to be a definition of a recession that said that you had to have two consecutive quarters - that is, six months - of negative growth in GDP, Gross Domestic Product, that is, that number should be negative. Obviously, it has not been negative, yet many people say we are in a recession. So how can you reconcile these two things? Well, the way you do it is that there is a new or modern definition of a recession. The modern definition of a recession is actually somewhat vague, but it says that there has to be a broad slowdown in the economy, and the people that make the call as to whether there is a recession look not only at the measure we're talking about, but they look at the employment market, they look at how sales are doing in many sectors of the economy. And so that requirement that Gross Domestic Product be negative for six months is no longer valid. And in fact, if you go back to the recession of 2001, we did not have two consecutive quarters of negative growth, and yet we obviously did have a recession. So stay tuned, we really won't know if we're in a recession probably until about six months into the future. But right now, it has all the signs of a broad-based slowdown."

Posted by Dave at May 23, 2008 08:10 AM