Hold The Hysteria (For Now)

Regarding the economy, it's hard not to notice this stark contrast: the "real economy" of spending, production and jobs—though weakening—is hardly in a state of collapse; but much of today's semi-hysterical commentary suggests that it is. Financial markets for stocks and bonds are regularly described as being "in turmoil." People talk about a recession as if it were the second coming of Genghis Khan. Some whisper the dreaded word "depression."

Meanwhile, Americans are expected to buy about 15 million cars, SUVs and light trucks in 2008; though down from 16.5 million in 2006, that's still a lot.

There's a disconnect between what people see around them and what they're told, often by highly respectable authorities, about what's happening. The first is upsetting (rising gas prices, falling home prices, fewer jobs) but reflects the normal reverses of a $14 trillion economy. The second ("panic," "financial meltdown") suggests the onset of something catastrophic and totally outside the experience of ordinary people. The economy, said The New York Times in a page-one piece last week, may be on "the brink of the worst recession in a generation"—an ominous, if imprecise, warning.

It may be, but as yet, the evidence is scant from either conventional economic statistics or mainstream forecasts. A recession is a noticeable period of declining output. A group of academic economists set the exact dates of a recession in hindsight, and since World War II, they've declared 10 of them. On average, these have lasted 10 months, involved a peak monthly unemployment rate of 7.6 percent and resulted in a decline of economic output (gross domestic product) of 1.8 percent, reports Mark Zandi of Moody's Economy.com. If the two worst recessions (those of 1981–82 and 1973–75, with peak unemployment of 10.8 percent and 9 percent, respectively) are excluded, the average peak jobless rate is close to 7 percent.

No one doubts that the economy has slowed. Many economists, though not all, think a recession has already started. Zandi is one. He forecasts peak unemployment of 6.1 percent (present unemployment: 4.8 percent) and a GDP drop of 0.4 percent. If that comes true, the recession of 2008 would confound predictions that it would be one of the worst since World War II; it would actually be milder than the average postwar recession and milder than the last two, those of 1990–91 and 2001.