After a summer of movie sequels, journalists are now pushing their latest, which could be called “Recession IV.”
Over the last four years, “recession” has been mentioned in more than 100 stories since August 2003, when the Bush recovery started, delivering 47 months of positive job growth.
Worries that “the housing slowdown could spark a full-blown recession” and “the risks of recession are rising in this country” have filled the news lately, but the media have been predicting this for years.
On the September 8 “CBS Evening News,” Politico’s Mike Allen said this economy is different from 1992’s because “there’s not a recession.” But CBS’s Michelle Miller immediately said, “Still, recession fears are real. Fallout from a subprime lending binge that went bust …”
This time, it’s the housing market. In years past, it’s been oil prices, hurricanes, global warming and terrorism that were supposed to plunge the U.S. economy into recession. Instead, the economy has been robust, and unemployment dropped to its current level of 4.6 percent.
The Recession of (Fill in Year Here)
Recession has been on the media’s radar for years. But while a recession (click for Investopedia definition) is characterized by employment troubles and at least two quarters of negative economic growth, the U.S. economy has grown and unemployment has fallen over the last four years.
Where was the recession of 2004? According to the “CBS Evening News,” it was imminent because of oil and gasoline prices.
On May 23, 2004, Leo Drollas of the Center for Global Energy Studies told CBS “… there’s no reason why it [a barrel of oil] shouldn’t go to the high 40s, even touching 50.” Anchor John Roberts also said “economists are now warning of a new recession” if the price of a gallon of gas went “much higher” (than $2.07 at the time).
CBS’s Randall Pinkston then warned, “Financial markets are hoping that kind of price spike will be temporary at best, because the price of energy drives the entire economy. In four of the last five recessions, oil shocks sparked economic downturn.”
On the June 12, 2004, broadcast, Tony Guida reported a similarly dire prediction.
“Some oil analysts see economic disaster if oil hangs around $40 a barrel,” Guida said.
He then turned to Peter Beutel of Cameron Hanover, who said: “We are going to see inflationary creep, then we’re going to see a Fed reaction, and then I’m almost certain we’re going to see a recession.”
Oil now is around $78 per barrel, and still no recession in the last three years.
The year 2006 saw another prediction boom, documented by the Business & Media Institute in Media Myth: The Recession/Depression of 2006 (Hint: It Never Happened). Network reports included warnings about interest rates, high oil prices, global warming, a slowing housing market, and terrorism that all could lead to a recession. In fact, during that year, the networks averaged almost one story per week that included references to an economic collapse either by recession or depression (49 times).
“With big business struggling, unsteady interest rates and signs of a recession, the best some forecasters are hoping for in 2006 is an average year,” said reporter Sharyn Alfonsi to kick off the New Year’s stock market predictions on the CBS “Evening News” on Jan. 1, 2006.
If at First the Economy Doesn’t Collapse …
But it still didn’t happen in 2006, which brings us to predictions for 2007 and 2008.
“It had a lot of economists uttering the ‘R’ word today, recession,” said CBS’s Anthony Mason on the September 7 “Evening News” after seeing job losses in August. “These job numbers are the most worrisome sign yet, Harry, that the housing slump and the mortgage crisis could take the entire economy down with them.”
A net loss of jobs in the August economic report sparked worries, though as Heritage Foundation labor expert James Sherk pointed out, August also showed some positive numbers.
“Accounting for inflation, average hourly wages still rose 1.7 percent in the past year,” he wrote. But perhaps more importantly, “benefits make up 30 percent of the average worker’s compensation,” and “total compensation per hour in the non-farm business sector has risen 3.0 percent in the past year, after inflation.”
Can We Predict a Recession?
As the media do almost-daily stories mentioning recession now, more and more sources are showing up to predict the calamity.
“[R]ecord numbers of housing foreclosures have economists worried that mortgage problems could lead to a recession,” said ABC’s Charles Gibson on the September 10 “World News.”
“Today the head of Countrywide Financial, a company that got $2 billion from Bank of America to stay afloat, told CNBC’s Maria Bartiromo it could take the economy into recession,” said NBC’s George Lewis on the August 23 “Nightly News.”
But can anyone really predict when a recession would occur?
If someone did, the announcement wouldn’t be for the general public, said Dr. Gary Wolfram, a professor of political economy at Hillsdale College and a BMI adviser.
“Somebody may know, but if you did know, you wouldn’t tell people other than your clients,” Wolfram told BMI.
Still, journalists and some economists are throwing the word around liberally. Wolfram said the reason is simple: “They want to be ahead of the crowd.”
“It’s [the media] been looking for the recession for years,” he said. Now that the idea has picked up steam, he said, don’t look for the chatter to stop anytime soon.
“It’s much akin to global warming – in that once the media has decided this, people who go against the grain are wacky, or have another agenda,” Wolfram said.
So What’s Next?
Not everyone is jumping ship just yet.
On Aug. 16, 2007, ABC’s Bianna Golodryga reassured Chris Cuomo that despite uncertainty at the New York Stock Exchange, “this isn’t a recession. The economy and job market is still holding up. The one thing we do know is that you have to have a stomach to weather this market. It’s gonna go on for a little while.”
Wolfram, the economics professor, said the media have been mistaken in blaming housing, oil prices, or other similar factors for recession risk.
“Recessions are caused by government action,” he said. Wolfram said the current uncertainty in the market comes from investors asking this question: “What goofy thing is Congress going to do in response to the subprime mess?” The specters of tax increases and increased regulation make the markets nervous, he said.
And Congress isn’t the only government entity that might act. All eyes will be on the Fed in the coming days to see whether a rate cut is next. CNBC personality Jim Cramer, a regular analyst on NBC News, has been lobbying for a rate cut.
Wolfram and fellow economists Brian Wesbury and Robert Stein agree a rate cut would be a bad idea.
It would send the wrong message to investors, Wolfram said: “If the Fed’s going to provide flood insurance, I might as well build in a flood plain.”
Wesbury and Stein wrote that “Today’s problems were created because interest rates were artificially low between 2001 and 2004, not because rates are currently too high.” Loans are still available for people with decent credit, and “the world is awash in liquidity.”
“Most fearful is that leading voices in the political and financial world are so willing to think that Fed policy can change the world,” Wesbury and Stein wrote on September 10.
Wolfram agreed, saying a rate cut would give the stock market a short-term boost, but would be bad for long-term inflation.
“In the end, the Fed’s going to have to do something about the fact that it’s causing inflation.”