Reading Recession Clues

By Jonathan Higuera
January 18, 2008 12:13 PM

The headlines paint the picture: “Stocks drop again after previous day slump,” “2007 inflation rate highest in 17 years,” and “JPMorgan Chase earnings drop 34 percent.”

And that’s just one day.

While we can’t say for sure that the nation’s economy is in a recession (it takes two quarters of economic data to say for certain), it certainly appears we are in a heck of a slump, if not an outright recession.

So what should business reporters be doing to reflect this bad news? First, they should not shy away from calling it as they see it. Why wait for the official word from an economist to tell us we’re in a recession. If you do, you might be half way through the business cycle before your reporting reflects the situation.

A better strategy is to take it upon yourself to do some measurements and observation. Are the lines at the local soup kitchens getting longer in your city? Are the food banks running out of food? Are more people applying for unemployment and food stamps? How are new car sales doing and what are the bankruptcy and foreclosure rates in your town?

From there, start studying the economic data. Don’t just pay attention to the jobless rate, but also take note of how many jobs were created and in what sectors and compare the data historically. It was always eye opening for me to note the difference in the number of jobs created between booming Sun Belt states, like Nevada and Arizona, and the once mighty manufacturing states like Michigan and Ohio. How are those Sun Belt states faring now?

Other data such as commercial real estate activity, gross state product and business startup and closure rates can also provide excellent fodder for analyzing an economy’s performance. I always found the Consumer Price Index’s basket of goods a bit too narrow to provide a broad view of inflation, but if it’s the only tool at your disposal, use it.

While you are at it, take a look at the earnings, hiring plans and the general behavior of the largest employers in your area. Are they instituting hiring freezes or are they busy churning out widgets? Every town, city or region will have varying degrees of impact. Find those differences and report on them. But most of all, understand what makes your local economy tick.

As business journalists, we sometimes think we need to hear an “official” take on the economy before we react and report. But if you wait for the Business Cycle Dating Committee at the National Bureau of Economic Research (that’s the nonprofit group of economists, professors and others who make the official call of when the country is in a recession), you might have missed its worst days. You will have failed to provide important coverage for your local readers.  

So talk to the experts, from the most pessimistic to the most optimistic economist. But let your own eyes and ears be your guide.

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Copyright © 2008 Donald W. Reynolds National Center for Business Journalism