Are we talking ourselves into recession?

By Stuart Pemble on Jun 23, 08 01:34 PM in Economics

Last Thursday, I was a guest at Drivers Jonas's annual crane survey for Birmingham. As its name suggests, this is a review of development in Brum's city core (measured by the number of cranes in the skyline) over the past 12 months. The survey results themselves were upbeat. This isn't a surprise (or shouldn't be) - there have been (and continue to be) lots of cranes in the sky.

And the survey wasn't all doom and gloom for the next 12 months. Although the residential market is going to slow significantly (just how many more studio apartments does the city centre need?), there is plenty of Grade A office space coming on stream.

However, the people I talked to over breakfast were uniformly downbeat about prospects for the next 12 to 24 months. Predictions ranged from the jokey - "I will be spending a lot of the next 12 months reducing my golf handicap" - to the downright suicidal - "It's 1929 all over again".

It's not just Brum's property and construction industries that are worried. A quick scan of the headlines suggests that people are concerned about at least some or all of the following: house prices are falling; interest rates are on the up; the price of fuel and food is increasing radically; you can't get a mortgage for love nor money; America's economy seems to be in an even worse state than ours; and the great and the good all seem to be predicting doom and gloom.

If you believe the pessimists, we are either in recession already or headed that way at a rate of knots. But, with all the authority I can muster from having got an A in an economics exam 21 years ago, I'm not so sure.

Hopefully more persuasively. I've also come across this very interesting article by Anotole Kaletsky in which he (with a lot more authority, knowledge and ability than I can) challenges the assumption that America is in recession. His basic argument is that a downturn in the housing and banking industries is just that: a downturn (albeit a painful one) but not a recession.

I can't help but wonder if the same argument doesn't apply to the UK. That's not to decry the difficulties people are facing, or that we live in challenging times, but are we really in recession? To pinch the definition used in Kaletsky's article - "A recession is a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income and wholesale-retail trade. A recession influences the economy broadly and is not confined to one sector." - the argument goes that we have not actually seen evidence of that.

Which brings me onto the question posed at the start. If we are not actually in recession, isn't there a danger that we will convince ourselves that things are worse than they really are? What do people think?

Comments (7)

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7 Comments

Julia Shelton said:

I think the issue is just how good we've had it for the past few years: low inflation, low interest rates, soaring house prices, falling car prices etc.

We've got used to la dolce vida and we're finding reality is biting uncomfortably hard...

June 24, 2008 12:10 PM

Richard Lillian said:

What is the reality though? Its true things seem bleak with high unemployment statistics but there are tons of high paying jobs posted on employment sites:

http://www.realmatch.com
http://www.craigslist.com
http://www.simplyhired.com

So why do the stats say no jobs and the employment sites feature hundreds of thousands of them? something is off!

June 24, 2008 8:01 PM

Robert said:

We are not talking our selves into it, it's here.

June 26, 2008 9:08 AM

Stuart Pemble said:

Thanks Julia, Richard and Robert for your comments. I agree with Julia that we are clearly noticing a tightening of our belts - and that may be the actual issue - and with Richard that the evidence of what actually happening is confusing - that was Mr Kaletsky's point in the article I have linked to. Robert: my (genuine) question is what specifically makes you say that the recession is here?

June 26, 2008 3:24 PM

Jonathan Worsley said:

I don't think we are in a recession. I view a recession in terms of negative growth.
The Confederation of British Industry has forecast 2009 GDP growth to 1.7pc.
Yes money is tight and yes the economy is slowing down but we have a long way to go before we hit recession status.
And I strongly disagree that we are talking ourselves into a recession. The population's sentiment reflects the global economy. People are much more media savvy than you think and the masses that count are more than capable of making a sensible judgement from the media hype.

June 27, 2008 11:49 AM

Paul Simister said:

There are two issues here.

1 - the external economy which is looking tougher than it has done for many years. The entire economy may not go into a recession but clearly some sectors will be very badly hit and I don't believe we have seen the full backlash in terms of reduced customer expenditure and rising unemployment yet.

2 - how we choose to react to the tough times. Accept it as an excuse and delay taking necessary actions and times will be very tough. Prepare for it, in terms of trimming your costs, identifying what can be done in sales and marketing activities and taking a firm grip of cash flow and you can come out of these difficulties much stronger, relative to your less prepared competitors.

July 1, 2008 1:19 PM

Stuart Pemble said:

Thanks Paul and Jonathan for your comments. Jonathan – I would love it to be the case that we are all as media-savvy as you suggest and I certainly agree that we should treat some of the more negative headlines with a pinch or three of salt. Paul - I certainly agree with you on the preparation point. I think the key will be working out precisely what it is we should be preparing ourselves for.

July 1, 2008 4:21 PM