Congratulations, It's A Recession

Economists give birth to a 1-year- old downturn. So when do things get better?

Good news. The keeper of the business cycle books, the National Bureau of Economic Research, announced Monday what economists have been saying for a long time--this is a recession. And, NBER says, it's been a recession since December of 2007.

The announcement comes as no surprise to anyone with a TV, newspaper or more than 10 friends. Why is it good news? We've already gotten through one year, and now the question is not "are we in a recession?" but the slightly more optimistic "are we in a recovery?"

Recession announcements are like babies in that there's growing evidence of what's coming months before they officially arrive. The U.S. gross domestic product first declined in the fourth quarter of 2008. Payroll employment has declined every month in 2008. Housing prices have been falling for two or three years in many regions of the country. The fifth largest investment bank, Bear Stearns, collapsed in March. The fourth largest, Lehman Brothers (nyse: LEHMQ - news - people ), filed for bankruptcy in September. A few weeks later, the stock market crashed. Consumer confidence plummeted.

The policy of the Business Cycle Dating Committee (seven of the nation's leading macro-economists who make the determination for the NBER) is to wait until it can assign a month in which the recession began--"the committee waits long enough so that the existence of a recession is not at all in doubt," according to the NBER.

However, a popular yardstick for recession--two successive quarters of GDP decline, has not yet been reached. The economy dipped (-.2% GDP) in the fourth quarter of 2007. But in the first quarter of 2008 it grew .9%, and in the second quarter, it grew 2.8%.

That robust second-quarter growth was boosted by the $152 billion economic stimulus act--at the time, a sum that seemed like overkill--and gave back an extra $600 to most taxpayers.

Figures for the fourth quarter of 2008 are likely to be poor. The outlook for the holiday shopping season is bleak. The Conference Board says U.S. households are expected to spend an average of $418 during the holiday season, off 12% from the $471 last year. A separate measure from Gallup says that Americans will spend $616, off 29% from the $866 last year. Whether the drop in spending is 12% or 29%, in a heavily consumption-dependent economy, the fall is likely to push the fourth quarter into negative territory.