Is the Economy Looking Better? A few weeks ago, most economists were convinced that the United States was in a recession, or at least headed for one. But now some say they're not so sure. Some key economic indicators suggest that growth hasn't slowed as much as the doomsayers predicted. Are these numbers just a blip? Or has the impact of the sub-prime mortgage crisis on the economy been exaggerated?
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Is the Economy Looking Better?

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Is the Economy Looking Better?

Is the Economy Looking Better?

Is the Economy Looking Better?

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A few weeks ago, most economists were convinced that the United States was in a recession, or at least headed for one. But now some say they're not so sure. Some key economic indicators suggest that growth hasn't slowed as much as the doomsayers predicted. Are these numbers just a blip? Or has the impact of the sub-prime mortgage crisis on the economy been exaggerated?

NOAH ADAMS, host:

The housing industry has not had much to celebrate for a time. Today, there's some good news. The number of permits issued for a new home construction rose at its fastest rate in two years. Economists, though, warn this could be a fluke.

Still, as NPR's Jim Zarroli reports, the numbers come at a time when some economists are rethinking the idea that the economy is already in recession.

JIM ZARROLI: Economists have their own way of talking, and when they speculate about how long and how deep a recession will be, they often use letters. In other words, if you put the course of economic growth on a chart, what kind of letter would it look like?

Mr. JARED BERNSTEIN (Senior Economist, Economic Policy Institute): Are we looking at a V economy where you get a big dip down but a quick bounce back? Are we looking at U, where you sort of go down and you stay there for a little while and then you come back? Or are we looking at more of an L, where you just kind of hang out at the bottom for a while?

ZARROLI: That's Jared Bernstein of the Economic Policy Institute and he's seen the L Camp. That is, Bernstein says, economic growth has fallen sharply and will probably flatline for another year or so, growth won't go up or down too much. He says real wages have fallen, energy prices are rising, and while Bernstein doesn't know if the economy is in a recession, it could be.

Mr. BERNSTEIN: Employment has contracted for four months in a row, and that's never happened since the 1950s without ultimately being labeled a recession.

ZARROLI: But economist Brian Wesbury at First Trust Advisors thinks the talk about a recession is overblown. Wesbury says it's true that troubles in the housing and credit markets have hurt the economy. On the other hand, there are plenty of good things going on right now.

Mr. BRIAN WESBURY (Chief Economist, First Trust Advisors): When you put those things together - an easy Federal Reserve or low interest rates, low tax rates and strong productivity - we've never had a recession with those things in place ever in history.

ZARROLI: Wesbury thinks that if you put the slowdown on a graph, some sectors like housing would look like a V - they fall in sharply and suddenly, but will rebound just as fast. But overall, the economy will revive more slowly, curving up kind of like a U. Wesbury says the resilience of the United States economy is truly impressive.

Mr. WESBURY: If you think back over the last few years, we had the dot-com crash, we had 9/11, we've had Enron and corporate scandals, we've had Katrina, wiping out of the 35th largest city, we've gone to war. I mean, it's amazing to think that this economy has kind of continued to chug on through.

ZARROLI: A few weeks ago, that kind of optimism was pretty rare. Well-known figures like Alan Greenspan and Warren Buffet have warned that the economy is most likely already in recession. But the first quarter growth numbers and the March unemployment data were not as bad as people feared. Stocks are up and David Wyss of Standard & Poor's says consumer spending hasn't fallen as much as you'd expect.

Mr. DAVID WYSS (Chief Economist, Standard & Poor's): If you look at the March consumer spending data, (unintelligible) was still only 0.2 percent. And taking cars out, April was a strong month with retail sales of 0.4 percent. So, you know, we're still doing our part in going out there and living beyond our means just like good Americans.

ZARROLI: So like some other economists, Wyss thinks the odds of a recession may have fallen a bit.

Mr. WYSS: I think this is going to be counted as a recession when we're done. I think we're in it already, but it's going to be one of those lazy, U-shaped recessions, sort of, you know, not very deep but relatively long.

ZARROLI: Wyss says two factors will affect the links of the downturn. One is oil prices. They're high and getting higher. And if that continues, it will hurt growth. The other is the financial markets. This downturn started because of a credit crunch. Many major banks lost billions of dollars in bad mortgage investments and investors panicked. They're calmer now, but more bad news from the banks could change that. And the odds of a recession will have to be recalculated again.

Jim Zarroli, NPR News, New York.

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