Talking Ourselves into Recession
When recession is whatever you feel, it can happen any time. But apparently the Federal Reserve doesnât feel itâs coming in 2008.
A New York Times headline November 21 â on the front page â read: âFed Expecting â08 Slowdown, Not Recession.â
ABCâs Deborah Roberts covered the Fedâs report the same day on âGood Morning America,â but didnât mention the Fed had stayed away from the âr-word.â
âIn other news, discouraging news about the economy,â Roberts said. âThe Federal Reserve predicts that economic growth will take a sharp downturn next year, thanks to the housing market and credit crisis.â
Though TV news is famous for covering the same stories as the Times, network broadcasts have instead harped on recession, mentioning it in 29 stories in the last month â almost once per day.
The morning of November 27, CBSâs âEarly Showâ featured a graphic onscreen blaring âRecession Fears,â and CNNâs âAmerican Morningâ team asked viewers, âWill we be in a recession sometime next year?â Unsurprisingly, 85 percent of respondents said yes.
CNNâs senior business correspondent Ali Velshi repeated a sentiment he has voiced before: recession may not depend on economic fact. At least that time he included the fact side of the equation.
âA recession really is a downturn in economic growth. It doesnât mean things are tight, doesnât mean things are tough. It actually means economic growth is going the wrong direction,â Velshi explained. âWe havenât seen that yet, but the other people say a recession is when you feel like thereâs a recession and you stop spending and then you cause a recession. So Iâd be very interested in seeing what folks say about that.â
Consumer Spending: Making or Breaking the Economy?
âConsumer spending accounts for more than two-thirds of the U.S. economy's growth. And if consumers really start to pull back, that is what will turn us from the r-word of resilience to the r-word of recession,â Erin Burnett of CNBC told Brian Williams on the âNBC Nightly Newsâ November 26.
In fact, retail statistics source ShopperTrak reported a 7.2-percent increase in sales from last yearâs âBlackâ post-Thanksgiving weekend â $16.4 billion total for Friday and Saturday combined.
âThe idea that the economy needs consumer profligacy is not nearly as entrenched among scholars as it is among journalists, politicians, and other citizens,â wrote economist and author Arnold Kling in January 2006. âIn fact, there is a strong case to be made that we would be better off if we had less consumer spending and more saving.â
Still, the media have worried, predicting an overall recession or something thatâs been coined a âconsumer recession.â
CNBCâs Burnett also warned about gas pricesâ impact on spending on the November 6 âToday.â
âConsumers like us account for two-thirds of the economy, and if we donât spend all of our money at the department stores and Target and Wal-Mart this shopping season, we could have a recession. So gas prices are a crucial part of that,â Burnett said.
âWall Street and investors really want to see that the consumer is still strong and can come out and spend and needs some reassurance that the American consumer is not in a recession, Peter,â said CNBCâs Margaret Brennan on the November 24 âToday.â
So what is a âconsumer recessionâ? Dr. Gary Wolfram, a Hillsdale College professor of economics and adviser to the Business & Media Institute, tackled that question.
âI suspect what they mean is that the economy will slow because consumers stop buying,â Wolfram told BMI. âBut if they stop buying, then they must be saving. And the bears have been complaining that consumers are in too much debt, so they should be happy that consumers are reducing their debt.â
And if money not spent on Christmas, for example, were put in banks â thatâs good for the economy, too.
âI think it is more valuable to look at what is happening to producers investing. If they are investing what consumers are saving, then the economy will be expanding, not contracting,â Wolfram said.
Media Lost Interest in Good News
The Fedâs most recent report, released November 20, wasnât the first time Fed Chairman Ben Bernanke had avoided foretelling recession. A couple of journalists noticed after Bernankeâs testimony to the congressional Joint Economic Committee November 8.
CBSâs Katie Couric said that ââŠ the chairman of the Federal Reserve predicted today that future growth will be, quote, ânoticeably slowerââ on the November 8 âEvening News.â
Even though the story showed Bernanke saying, âWe have not calculated the possibility of a recession,â Anthony Mason said, âUnseasonably warm weather may be discouraging shoppers, but rising gas prices and slumping house values could keep them away this holiday season and tip a troubled economy into recession.â
ABCâs Sam Donaldson acknowledged the Fed chairmanâs words on the November 11 âThis Weekâ: âIf we go into a recession â and you saw Ben Bernanke, he didnât want to say we might go into a recession, but slow growth âŠâ
However, just a few sentences later, Donaldson said ââŠ I think itâs going to go into a recession.â
As The New York Timesâs story showed, there was a lot more to the recent release from the Fed â more optimistic than the networksâ constant obsession with recession.
âAt the same time, Fed officials expect unemployment to rise only slightly and inflation to edge down,â wrote the Timesâs Edmund L. Andrews. (Note: the headline for the online version of Andrewsâs story differed from the print version mentioned earlier.)
âNeither the forecast nor newly released minutes from the Fedâs last meeting on Oct. 31 mentioned the chances of a recession,â Andrews wrote. âBut the new predictions are low enough that, if borne out, the economic situation might well feel like a recession to many people.â
Still, âthe new assessment shows that policy makers still see only limited evidence that the problems in housing and subprime mortgages have damaged the broad economy,â Andrews wrote.
Other Indicators: Starbucks, Sweaters and RVs
Journalists have turned to several âeconomic indicatorsâ to evaluate the economyâs health. In addition to sweater sales, which was an early call from âGood Morning America,â Starbucks coffee and mobile homes were added to the mix.
âStarbucks is also an economic indicator, and the news on that front isnât all good,â said anchor Brian Williams on the November 16 âNBC Nightly News.â
Trish Regan asserted consumers were feeling the pinch of gas prices and other expenses and cutting back. However, later she included the facts that Starbucks had raised its prices while Dunkinâ Donuts offers cheaper lattes.
The segment also threw in John Bogle, founder of investment management firm Vanguard: âIf youâre going to cut back, youâre feeling a little pressure from recession, and maybe youâre not so sure about where your moneyâs going to come from, youâre going to go to Dunkinâ Donuts or another place where you can get coffee a lot cheaper.â
Later, Regan added: âVanguardâs founder John Bogle says thereâs a 75-percent chance of recession.â
NBCâs Williams also found doom foretold on the Winnebago sales lot.
âAnother sign of the economic times today â Bloomberg reports that Winnebago expects to show its first drop in orders in six years. Here's why that matters,â Williams said on the âNightly Newsâ November 27. âOver the last three decades of U.S. history, every time orders for mobile homes have dropped, the economy has suffered a downturn soon after.â
âThe Early Showâ was similarly bearish November 27. With âRecession Fearsâ appearing on the screen, CBSâs Russ Mitchell said: âThere are signs that investors fear the economy may be headed toward a recession. Investors remain nervous about the subprime mortgage crisis and the credit crunch.â
However, economics professor Wolfram assured BMI that âthe market will figure out a way to restructure these subprimes so not all of America ends up sleeping in their cars with empty houses on every block.â