U.S. recession is here: Merrill Lynch economist

Last Updated: Tuesday, January 8, 2008 | 3:09 PM ET

CBC News

The U.S. economy has landed in recession, according to an economist at brokerage firm Merrill Lynch.

David Rosenberg, Merrill Lynch's chief North American economist, said Friday’s employment report — which showed the U.S. jobless rate jumped to a two-year high of five per cent in December on weaker-than-expected job creation — "strongly suggests that an official recession has arrived."

'To say that the backdrop is "recession-like" is akin to an obstetrician telling a woman that she is "sort of pregnant."'—David Rosenberg, economist

In a report dated Monday, Rosenberg outlined several data markers that he says are unequivocally associated with recession.

"At no time in the past 60 years has the unemployment rate risen 60 basis points … from the cycle low without the economy slipping into recession, and here we now have the jobless rate hitting five per cent in December versus the [March 2007] trough of 4.4 per cent," he argues.

Rosenberg also cites figures on aggregate hours worked in the economy. They contracted at an annual rate of 0.4 per cent in the fourth quarter, following a 0.6 per cent decline in the third quarter. 

"Back-to-back declines in total hours worked have always been associated with recession," he said.

An official declaration of a recession could be a long time coming, however. The recession dating committee at the U.S. National Bureau of Economic Research (NBER) waits for conclusive evidence, including revisions, so it may be least two years before an economic downturn is officially pronounced, Rosenberg said.

But the head of the NBER doesn't think the U.S. is into a recession just yet.

"I think we're not in a recession now," Martin Feldstein told CNBC. But he said there is a "serious risk" of a downturn. After the U.S. jobs report came out last Friday, he said the odds of a U.S. recession were now greater than 50 per cent.   

A recession has been traditionally defined as two consecutive quarters of economic contraction. However, NBER's definition is broader. It says 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."

According to NBER, the most recent U.S. recession lasted from March 2001 to November of that year. The March 2001 peak was announced on Nov. 26, 2001, and the November economic trough was pronounced on July 17, 2003.

In his report, Rosenberg has little time for other economists who may say current conditions are "recessionary" or "recession-like."

"One can speak euphemistically if one chooses, but there are no substitutes for outright 'recessions' — to say that the backdrop is 'recession-like' is akin to an obstetrician telling a woman that she is 'sort of pregnant,'" he said.

"You either are or you are not."

No recession seen in Canada

Most economists say the Canadian economy will be hit by the downturn in the U.S. economy as three-quarters of Canada's exports head south of the border. But the consensus is that Canada will slow — rather than stall — escaping a recession this time, much as it missed the 2001 U.S. recession.

Bank of Canada governor David Dodge said Monday the downside risks to the economy have increased since the bank put out its last economic outlook in October.  

Media reports quoted Dodge at a financial meeting in Switzerland as saying the "appreciation of [the] Canadian dollar against [the] U.S. dollar is clearly having a slightly greater downside impact on our domestic inflation than we had estimated last October."

He also said the risks to Canada from slower U.S. growth in the first six months of this year "are probably greater than we had estimated."

In October, the central bank was forecasting GDP growth in Canada of 2.2 per cent this year.