Chorus of American woe intensifies

Discussion of the American economy is becoming increasingly gloomy. There is a growing consensus that it is already in recession or about to enter one.

Those who argue that recession is nigh include many of Wall Street’s top economic luminaries.

David Rosenberg, Merrill Lynch’s North America economist, argued last week that the economy entered a recession at the end of 2007.

On the same day Richard Berner and David Greenlaw, economists at Morgan Stanley, suggested America will enter a mild recession in the first half of 2008.

Back in December Stephen Roach of Morgan Stanley, probably Wall Street’s most prominent bear, argued in The New York Times that America was slipping into its second post-bubble recession in seven years.

Other indicators suggest such gloom is widespread. The Wall Street Journal’s monthly poll of economists put the odds of recession at 42% compared with 38% last month.

Reports from the annual meeting of the American Economic Association suggest it was decidedly downbeat.

The Economist’s R-word index, which measures the number of stories in which the word “recession” is mentioned in The New York Times and The Washington Post, is also on a rising trend.

Others have suggested America is facing serious economic problems without explicitly saying there is a recession.

The most notable of these is Ben Bernanke, the chairman of the Federal Reserve, who suggested in a speech last week that interest rate cuts were likely.

Meanwhile, Lawrence Summers, a former US treasury secretary and now economics professor at Harvard, wrote a column in the Financial Times saying America needs a fiscal stimulus.

The problem with calling a recession in America is that the official definition leaves considerable room for interpretation.

The National Bureau of Economic Research, the official body that declares recessions in America, defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months”.

However, it often does not declare a recession until the process is well underway.

Ultimately, the debate is largely about semantics. It is widely believed that America will suffer a slowdown but not everyone wants to call it a recession.