Media Coverage Rated 'R' for 'Recession'
After a summer of movie sequels, journalists are now pushing their latest, which could be called âRecession IV.â
Over the last four years, ârecessionâ has been mentioned in more than 100 stories since August 2003, when the Bush recovery started, delivering 47 months of positive job growth.
Worries that âthe housing slowdown could spark a full-blown recessionâ and âthe risks of recession are rising in this countryâ have filled the news lately, but the media have been predicting this for years.
On the September 8 âCBS Evening News,â Politicoâs Mike Allen said this economy is different from 1992âs because âthereâs not a recession.â But CBSâs Michelle Miller immediately said, âStill, recession fears are real. Fallout from a subprime lending binge that went bust âŚâ
This time, itâs the housing market. In years past, itâs been oil prices, hurricanes, global warming and terrorism that were supposed to plunge the U.S. economy into recession. Instead, the economy has been robust, and unemployment dropped to its current level of 4.6 percent.
The Recession of (Fill in Year Here)
Recession has been on the mediaâs radar for years. But while a recession (click for Investopedia definition) is characterized by employment troubles and at least two quarters of negative economic growth, the U.S. economy has grown and unemployment has fallen over the last four years.
Where was the recession of 2004? According to the âCBS Evening News,â it was imminent because of oil and gasoline prices.
On May 23, 2004, Leo Drollas of the Center for Global Energy Studies told CBS ââŚ thereâs no reason why it [a barrel of oil] shouldnât go to the high 40s, even touching 50.â Anchor John Roberts also said âeconomists are now warning of a new recessionâ if the price of a gallon of gas went âmuch higherâ (than $2.07 at the time).
CBSâs Randall Pinkston then warned, âFinancial markets are hoping that kind of price spike will be temporary at best, because the price of energy drives the entire economy. In four of the last five recessions, oil shocks sparked economic downturn.â
On the June 12, 2004, broadcast, Tony Guida reported a similarly dire prediction.
âSome oil analysts see economic disaster if oil hangs around $40 a barrel,â Guida said.
He then turned to Peter Beutel of Cameron Hanover, who said: âWe are going to see inflationary creep, then weâre going to see a Fed reaction, and then Iâm almost certain weâre going to see a recession.â
Oil now is around $78 per barrel, and still no recession in the last three years.
The year 2006 saw another prediction boom, documented by the Business & Media Institute in Media Myth: The Recession/Depression of 2006 (Hint: It Never Happened). Network reports included warnings about interest rates, high oil prices, global warming, a slowing housing market, and terrorism that all could lead to a recession. In fact, during that year, the networks averaged almost one story per week that included references to an economic collapse either by recession or depression (49 times).
âWith big business struggling, unsteady interest rates and signs of a recession, the best some forecasters are hoping for in 2006 is an average year,â said reporter Sharyn Alfonsi to kick off the New Yearâs stock market predictions on the CBS âEvening Newsâ on Jan. 1, 2006.
If at First the Economy Doesnât Collapse âŚ
But it still didnât happen in 2006, which brings us to predictions for 2007 and 2008.
âIt had a lot of economists uttering the âRâ word today, recession,â said CBSâs Anthony Mason on the September 7 âEvening Newsâ after seeing job losses in August. âThese job numbers are the most worrisome sign yet, Harry, that the housing slump and the mortgage crisis could take the entire economy down with them.â
A net loss of jobs in the August economic report sparked worries, though as Heritage Foundation labor expert James Sherk pointed out, August also showed some positive numbers.
âAccounting for inflation, average hourly wages still rose 1.7 percent in the past year,â he wrote. But perhaps more importantly, âbenefits make up 30 percent of the average workerâs compensation,â and âtotal compensation per hour in the non-farm business sector has risen 3.0 percent in the past year, after inflation.â
Can We Predict a Recession?
As the media do almost-daily stories mentioning recession now, more and more sources are showing up to predict the calamity.
â[R]ecord numbers of housing foreclosures have economists worried that mortgage problems could lead to a recession,â said ABCâs Charles Gibson on the September 10 âWorld News.â
âToday the head of Countrywide Financial, a company that got $2 billion from Bank of America to stay afloat, told CNBCâs Maria Bartiromo it could take the economy into recession,â said NBCâs George Lewis on the August 23 âNightly News.â
But can anyone really predict when a recession would occur?
If someone did, the announcement wouldnât be for the general public, said Dr. Gary Wolfram, a professor of political economy at Hillsdale College and a BMI adviser.
âSomebody may know, but if you did know, you wouldnât tell people other than your clients,â Wolfram told BMI.
Still, journalists and some economists are throwing the word around liberally. Wolfram said the reason is simple: âThey want to be ahead of the crowd.â
âItâs [the media] been looking for the recession for years,â he said. Now that the idea has picked up steam, he said, donât look for the chatter to stop anytime soon.
âItâs much akin to global warming â in that once the media has decided this, people who go against the grain are wacky, or have another agenda,â Wolfram said.
So Whatâs Next?
Not everyone is jumping ship just yet.
On Aug. 16, 2007, ABCâs Bianna Golodryga reassured Chris Cuomo that despite uncertainty at the New York Stock Exchange, âthis isnât a recession. The economy and job market is still holding up. The one thing we do know is that you have to have a stomach to weather this market. Itâs gonna go on for a little while.â
Wolfram, the economics professor, said the media have been mistaken in blaming housing, oil prices, or other similar factors for recession risk.
âRecessions are caused by government action,â he said. Wolfram said the current uncertainty in the market comes from investors asking this question: âWhat goofy thing is Congress going to do in response to the subprime mess?â The specters of tax increases and increased regulation make the markets nervous, he said.
And Congress isnât the only government entity that might act. All eyes will be on the Fed in the coming days to see whether a rate cut is next. CNBC personality Jim Cramer, a regular analyst on NBC News, has been lobbying for a rate cut.
Wolfram and fellow economists Brian Wesbury and Robert Stein agree a rate cut would be a bad idea.
It would send the wrong message to investors, Wolfram said: âIf the Fedâs going to provide flood insurance, I might as well build in a flood plain.â
Wesbury and Stein wrote that âTodayâs problems were created because interest rates were artificially low between 2001 and 2004, not because rates are currently too high.â Loans are still available for people with decent credit, and âthe world is awash in liquidity.â
âMost fearful is that leading voices in the political and financial world are so willing to think that Fed policy can change the world,â Wesbury and Stein wrote on September 10.
Wolfram agreed, saying a rate cut would give the stock market a short-term boost, but would be bad for long-term inflation.
âIn the end, the Fedâs going to have to do something about the fact that itâs causing inflation.â