Business: A Borderline Case of Recession?

WHEN I use a word," Humpty Dumpty told Alice in Through the Looking Glass, "it means just what I choose it to mean—neither more nor less." To a layman, that might seem to sum up the spirit in which economists are now debating whether the U.S. is undergoing a "recession."

The question becomes more insistent with each new crop of statistics. Last week automakers disclosed that in the middle ten days of February sales of new cars dropped 19% below the same period last year. General Motors scheduled temporary shutdowns of ten assembly plants, Ford of six. The two automakers announced indefinite layoffs for 5,200 workers. The Government reported a 6% January drop in durable goods orders, the sharpest decline since 1964; and the index of leading indicators dropped 1.8% in January, its largest decline since October 1957, when the economy was heading into the deepest postwar U.S. recession.

The Arbiter. The more economists ponder whether these and other signs add up to a recession, the more they realize, as chief Presidential Economic Adviser Paul McCracken puts it, "The word itself is not an unambiguously precise term." There is really only one reliable definition: if experts of the National Bureau of Economic Research decide to call a business decline a recession, so shall it be known. But the NBER only identifies recessions long after they have begun, and by a complex process that yields no hard and fast criteria. The behavior of gross national product, industrial production, employment, personal income and many other statistics are matched against their performance in past periods designated as recessions, and NBER analysts decide if the patterns are basically similar.

Many economists have adopted as an informal definition of recession a decline in real gross national product—that is, G.N.P. minus the effect of inflation—in two successive quarters. Such a decline has never occurred except during a cycle that the NBER calls a recession. Last week McCracken dismissed the simple definition as "nonsense." Trying to frame a standard so exact, he said, is as "pointless" as trying to determine "the exact minimum number of whiskers that qualify to be called a beard."

Semantic Fog. The closest thing to a Nixon Administration definition of recession is the "adjectival" standard advanced by McCracken: a recession is "a substantial and broadly based decline in business activity that runs for a considerable span of time." Presumably using some such criteria, Arthur Burns, the new chairman of the Federal Reserve Board, told the Congressional Joint Economic Committee two weeks ago that we do not have a recession and I do not think we are going to have it." A the same hearing, Burns and McCracken conceded that U.S. production is dropping and will probably remain flat for awhile. They also agreed that the 1970 unemployment rate is likely to average 4.3%, v. 3.5% in 1969.