The U.S. economy jolted into reverse during the third quarter as consumers cut back on their spending by the biggest amount in 28 years, the strongest signal yet the country has hurtled into recession.

The broadest barometer of U.S. economic health, gross domestic product, shrank at a 0.3 percent annual rate in the July-September quarter, the Commerce Department reported Thursday.

—Associated Press reporting in "Economy shrinks in 3Q, signaling recession"

The GDP, or gross domestic product, appears to be a somewhat inflated measure of the national economy—which is to say that if the measure falls, you may trust that fewer trips are being made to Wal-Mart, fewer cars are being sold to get there and fewer light bulbs are being lit.

I am always amazed at the endless discussions on the news channels as to whether the U.S. is in a recession. It's like wondering whether a hurricane has hit without looking out the window.

"Recession" itself is economic jargon—a term that allows economists to pontificate and the talking heads of TV something to speculate about. What the word tries to capture is that the economy (whatever that is) has not been doing so well. But realistically—unless you have just parachuted out of your latest financial boondoggle—you know that it has not.

Unfortunately the obvious is so difficult for economists to determine that they have a board set up to tell us, only after the fact, that a recession has occurred. The National Board of Economic Research (NBER) will let you know—eventually.

Meanwhile economist Nouriel Roubini, now known affectionately as "Dr. Doom" since he was one of the few of his ilk to predict the global crackup, has been in great demand lately by "think tanks" and government advisory committees.

With the release of the GDP figures, Roubini has scored again. Two months ago in a piece titled "The Coming US Consumption Bust: 12 Reasons Why the US Consumer is in Serious Trouble and Faltering" Roubini predicted—

... expect to see a contraction of GDP in quarterly figures already in Q3 of this year and all the way until the middle of 2009. Since the US recession started in Q1 of this year (based on the five indicators used by the NBER) the 18 month U-shaped recession will be a W-shaped recession given the blip in GDP in Q2 following the tax rebates and an unsustainable improvement in net exports....
....

A shopped-out, saving-less and debt-burdened US consumer is now stretched like never before, at its tipping point and starting to falter and contract spending. Since we have not seen a fall in consumption – even for a single quarter - for the last 18 years the effects of this sharp retrenchment of US consumption will be severe and cause a protracted and sharp US recession, at least a 18 months recession rather than the 6 months recession predicted by a delusional economic consensus.

Roubini broke with his fellow economists (the "delusional economic consensus") here and boldly declared that the "recession" began in the first quarter of this year. Still, as he reveals in this forecast, what an optimist he is!

Related posts
The Depression Chronicles – 3: Money market funds (5/06/08)
The Depression Chronicles – 5: Consumer spending (5/13/08)
Understatement of the Day: A failing economy and an ignorant public (5/26/08)

Tags: news and politics recession depression economics GDP