|BY TOM POTIOWSKY|
We love a bad news story. Crime and scandal sell newspapers and capture TV viewership. Back in 1994, Oregonians (and the nation) were glued to the TV watching O.J. Simpson driving down the highway in a white Ford Bronco. While everyone was debating whether O.J. committed the murder, I was wondering what would happen to the sales of white Ford Broncos. Such is the life of an economist.
The media have a new bad news story: the economy. The national broadcast media mentioned the economy or recession in 54 stories during the first two weeks of this year. Recession stories outpaced optimistic economic news by 4 to 1. The Economist has an informal R-word index that counts the number of times that The New York Times and Washington Post use the word “recession” and calculates a quarterly rate. The index was quite low for the past few years but started to rise in the second half of 2007. It is now soaring and should match the same rate seen at the start of the 2001 recession.
Turn to any newspaper, TV channel or Internet news site and doom and gloom are plastered everywhere. “Private-sector shocker: Key ISM gauge takes a January polar-bear plunge.” “Housing market meltdown.” “Subprimes batter banks’ balance sheets.” It goes on and on. A Washington Post-ABC News poll conducted Jan. 30 to Feb. 1 found that the economy has taken over as the No. 1 concern from the war in Iraq. Eight in 10 Americans describe the economy as “not so good.” So much for “scientific” polls. “Not so good” — but can you tell me how you really feel?
The most alarming result from this poll was that half of the respondents said the U.S. economy is in a long-term decline. The only rationale I can chalk this up to is media hype, because people generally do not know the definition of a recession. The National Bureau of Economic Research, the official recession dating organization, uses this definition: A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production and wholesale-retail sales.
What the average person on the street knows is that the news media are ablaze with “recession” and descriptions of an economy teetering on a cliff edge, ready to fall into a dark, bottomless abyss of eternal damnation, or something worse.
Regardless if we want to declare that the U.S. economy is or is not in recession today, the media’s doom and gloom further weighs on the consumer’s sour economic outlook.
I’m not suggesting that the media recession hype can cause a recession. Rather, the media could marginally decrease consumer spending, beyond what other economic forces are doing. A study from the San Francisco Federal Reserve Bank argues that more stories concerning recession scenarios are associated with lower measures of consumer sentiment. This, in turn, could cause lower consumer spending.
And here’s some news you don’t hear much about. Expansions last longer than recessions. From 1945 to 2001, there have been 10 business cycles in the U.S. economy. The average length of recession is 10 months, and the average length of expansion is 57 months. After the 1980-82 recession, expansion periods lasted 92 months and then 128 months. If the present expansion is truly at an end in January, we had 73 months of growth.
As for Oregon, we generally follow the U.S. economy. But the degree to which we feel the same pain has varied across recessions. The 1990-91 recession was relatively mild in Oregon, while the 2001 recession hit us harder than almost any other state.
What about this time around? Our housing market has been hit, and wood products are experiencing one of the worst downturns in history. But Oregon was a relative latecomer to the housing run-up, and although housing starts are down, price appreciation is still positive, and one of the highest in the country. Oregon also has a relatively lower amount of subprime mortgages and foreclosures to date. Oregon will go the way of the U.S. economy, but this time around the impact may not be as great as back in the early 2000s.
What to make of all this? Discount the media, prepare for some harder days ahead, but recognize that stronger economic times are the norm, not the exception.
Tom Potiowsky is Oregon’s state economist.
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