Recession? Consumers say ‘I told you so’

By John Cunniff The Associated Press The Associated Press
Tuesday November 27, 2001

NEW YORK — Economists officially declare a recession exists, you might say, months after ordinary folks have sensed it coming, experienced it, and if able to, taken action to deal with it. 

As a consequence, economists become the butt of jokes by stand-up comics who couldn’t define industrial production or other seismological terms used by economists in measuring the tremors of the economy. 

It’s unfair, of course. Consumers standing on the surface feel changes quickly — in their job security, paychecks, stock portfolios. They mix in the latest news, rumors, hopes and fears, and act accordingly. 

It’s all subjective, perhaps misinformed too, but it becomes the basis for what consumers do or don’t do in the marketplace. 

And what they do or don’t do is a major factor in determining where the economy is headed. 

In short, the consumer “knows” a recession is in the offing by the way her or she feels, and the way they feel becomes a factor in what happens, whereas the economists have to wait until the facts are in. 

Sometimes the consumers are right, sometimes not. Sometimes they befuddle the best minds of academe and government, as in their recent insistence on not spending tax rebates that were meant to be spent in order to avert or moderate a recession. 

University of Michigan researchers found only 22 percent of rebate recipients spent or planned to spend the money, contradicting not just past behavior but the expectations of government economists. 

In 1995, by comparison, a large percentage of consumers spent the extra cash resulting from a 1992 executive order revising income tax withholding rates that increased monthly incomes by about $29. 

As a result of this quirk in 2001 spending behavior, the Michigan researchers suggest that the tax rebate will end up having provided a very limited stimulus to aggregate demand — in effect, that fiscal policy failed. 

Such failures to anticipate economic performance don’t prove economists are ill-informed and don’t provide support for the typical consumer boast that anyone could see that a recession had set in. 

Consumers feel the surface vibrations; the professionals dig into a substrata that includes industrial production, employment and wholesale and retail trade — deep down, where the vibrations originate. 

In so doing, they gain an understanding of various factors often hidden from the consumer, such as the eventual intensity of the recession and its duration. 

In that regard they are one up on the consumer: They are sometimes in a position to forecast the onset of the new economic expansion, months ahead of the consumer who can only wait to feel it when it comes.