Talking Ourselves into Recession
When recession is whatever you feel, it can happen any time. But apparently the Federal Reserve doesn’t feel it’s coming in 2008.
A New York Times headline November 21 – on the front page – read: “Fed Expecting ’08 Slowdown, Not Recession.”
ABC’s Deborah Roberts covered the Fed’s report the same day on “Good Morning America,” but didn’t mention the Fed had stayed away from the “r-word.”
“In other news, discouraging news about the economy,” Roberts said. “The Federal Reserve predicts that economic growth will take a sharp downturn next year, thanks to the housing market and credit crisis.”
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 – almost once per day.
The morning of November 27, CBS’s “Early Show” featured a graphic onscreen blaring “Recession Fears,” and CNN’s “American Morning” team asked viewers, “Will we be in a recession sometime next year?” Unsurprisingly, 85 percent of respondents said yes.
CNN’s 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.
“A recession really is a downturn in economic growth. It doesn’t mean things are tight, doesn’t mean things are tough. It actually means economic growth is going the wrong direction,” Velshi explained. “We haven’t seen that yet, but the other people say a recession is when you feel like there’s a recession and you stop spending and then you cause a recession. So I’d be very interested in seeing what folks say about that.”
Consumer Spending: Making or Breaking the Economy?
Journalists worried before Thanksgiving about holiday shopping. And they kept worrying as sales figures came in.
“Consumer 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,” Erin Burnett of CNBC told Brian Williams on the “NBC Nightly News” November 26.
In fact, retail statistics source ShopperTrak reported a 7.2-percent increase in sales from last year’s “Black” post-Thanksgiving weekend – $16.4 billion total for Friday and Saturday combined.
That’s good news for the economy, but as some economists have explained, consumer spending is not the be-all and end-all of economic health.
“The idea that the economy needs consumer profligacy is not nearly as entrenched among scholars as it is among journalists, politicians, and other citizens,” wrote economist and author Arnold Kling in January 2006. “In fact, there is a strong case to be made that we would be better off if we had less consumer spending and more saving.”
Still, the media have worried, predicting an overall recession or something that’s been coined a “consumer recession.”
CNBC’s Burnett also warned about gas prices’ impact on spending on the November 6 “Today.”
“Consumers like us account for two-thirds of the economy, and if we don’t 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,” Burnett said.
“Wall 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,” said CNBC’s Margaret Brennan on the November 24 “Today.”
So what is a “consumer recession”? Dr. Gary Wolfram, a Hillsdale College professor of economics and adviser to the Business & Media Institute, tackled that question.
“I suspect what they mean is that the economy will slow because consumers stop buying,” Wolfram told BMI. “But 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.”
And if money not spent on Christmas, for example, were put in banks – that’s good for the economy, too.
“I 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,” Wolfram said.
Media Lost Interest in Good News
The Fed’s most recent report, released November 20, wasn’t the first time Fed Chairman Ben Bernanke had avoided foretelling recession. A couple of journalists noticed after Bernanke’s testimony to the congressional Joint Economic Committee November 8.
CBS’s Katie Couric said that “… the chairman of the Federal Reserve predicted today that future growth will be, quote, ‘noticeably slower’” on the November 8 “Evening News.”
Even though the story showed Bernanke saying, “We have not calculated the possibility of a recession,” Anthony Mason said, “Unseasonably 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.”
ABC’s Sam Donaldson acknowledged the Fed chairman’s words on the November 11 “This Week”: “If we go into a recession – and you saw Ben Bernanke, he didn’t want to say we might go into a recession, but slow growth …”
However, just a few sentences later, Donaldson said “… I think it’s going to go into a recession.”
As The New York Times’s story showed, there was a lot more to the recent release from the Fed – more optimistic than the networks’ constant obsession with recession.
“At the same time, Fed officials expect unemployment to rise only slightly and inflation to edge down,” wrote the Times’s Edmund L. Andrews. (Note: the headline for the online version of Andrews’s story differed from the print version mentioned earlier.)
“Neither the forecast nor newly released minutes from the Fed’s last meeting on Oct. 31 mentioned the chances of a recession,” Andrews wrote. “But the new predictions are low enough that, if borne out, the economic situation might well feel like a recession to many people.”
Still, “the new assessment shows that policy makers still see only limited evidence that the problems in housing and subprime mortgages have damaged the broad economy,” Andrews wrote.
Other Indicators: Starbucks, Sweaters and RVs
Journalists have turned to several “economic indicators” to evaluate the economy’s health. In addition to sweater sales, which was an early call from “Good Morning America,” Starbucks coffee and mobile homes were added to the mix.
“Starbucks is also an economic indicator, and the news on that front isn’t all good,” said anchor Brian Williams on the November 16 “NBC Nightly News.”
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 Dunkin’ Donuts offers cheaper lattes.
The segment also threw in John Bogle, founder of investment management firm Vanguard: “If you’re going to cut back, you’re feeling a little pressure from recession, and maybe you’re not so sure about where your money’s going to come from, you’re going to go to Dunkin’ Donuts or another place where you can get coffee a lot cheaper.”
Later, Regan added: “Vanguard’s founder John Bogle says there’s a 75-percent chance of recession.”
NBC’s Williams also found doom foretold on the Winnebago sales lot.
“Another sign of the economic times today – Bloomberg reports that Winnebago expects to show its first drop in orders in six years. Here's why that matters,” Williams said on the “Nightly News” November 27. “Over the last three decades of U.S. history, every time orders for mobile homes have dropped, the economy has suffered a downturn soon after.”
“The Early Show” was similarly bearish November 27. With “Recession Fears” appearing on the screen, CBS’s Russ Mitchell said: “There 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.”
However, economics professor Wolfram assured BMI that “the 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.”
