White House Economy Guru: No Recession Ahead

Edward Lazear, chariman of the Council of Economic Advisers, says he’d be "surprised” if the current slowdown turned into a recession.

The chief economist of the Bush administration told reporters that the numbers simply don’t point to a real recession and, barring a dramatic change in the economy, it probably won’t happen at all.

Plenty of economic experts have weighed in to the contrary — that a recession is here, now — but Lazear is doubtful. "The data are pretty clear that we are not in a recession," Lazear told editors and reporters in a meeting.

The U.S. economy grew by 0.6 percent in both the first quarter of 2008 and in the last quarter of the previous year. A succession of Fed rate cuts has moved the benchmark down to 2 percent, where some predict it will stay for now.

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Part of the reason Lazear is hopeful is the way a recession is called.

The National Bureau of Economic Research (NBER), which determines well after the fact what is or is not a recession, considers factors as broad as income, jobs, industry, and sales at both wholesale and retail levels.

So far, the credit crisis and housing bust seem to be affecting some of these areas more than others, a sign that the impact has been selective, Lazear says. Retailers are suffering, but job losses have been slight, for instance.

"I would be very surprised if the NBER, looking back at this period, would date this as a recession.

"The optimists seem to have been closer to right on that than the pessimists," he said.

Another White House insider, Treasury Secretary Henry Paulson, also spent some time this week suggesting that the economy was nearly in the clear. And President Bush has avoided using the "R” word at all, talking about sluggishness instead.

(Interestingly, Martin Feldstein, the Harvard prof and former Reagan advisor who heads the NBER, this week said literally the opposite — that the U.S. is in fact sliding into a recession right now.)

Meanwhile, the Democratically controlled Congress has been putting together a second stimulus package to follow on the heels of the $152 billion in tax rebate checks hitting mailboxes now.

Lazear seemed to split hairs in his explanation, focusing on semantics, but his bottom line was clear — it won’t be as bad as all that, or even as bad as the 2001 slowdown most Americans have essentially forgotten.

"When people talk about the economy being bad, I think they don't have what most economists and most people who are talking about a recession have in mind, namely these indicators — profits, industrial production, tightness in credit markets,” Lazear says.

Instead, ordinary people focus on their pocketbooks, specifically skyrocketing gasoline and food prices, and with reason, Lazear said. A broad majority of Americans think $5 a gallon gasoline is a coming reality, according to a new CNN poll.

Yet even these forces seem to be basically in check, he says.

"We've had increasing energy prices for a few years now, this is not a new phenomenon. And despite that, we've been able to deal with it, primarily because productivity growth has been so strong," Lazear says.

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