May 2, 2008 12:26

So just what kind of 'recession-like episode' are we in?

The phrase is Brad DeLong's, and I like it. The latest indicators, out this morning, are the April payroll employment (down 20,000, after seasonal adjustments) and unemployment rate (5%, down from 5.1% in March). That's better than most economic forecasters expected, but it's entirely possible the payroll number will be revised to -100,000 (or even plus 50,000) a month or two from now. (That happens a lot.)

As has been said here and elsewhere again and again, the proximate cause of our current recession-like episode was the unprecedented buildup in U.S. consumer indebtedness in the first part of this decade (household debt rose from $7 trillion in 2000 to $13 trillion by the end of 2006). That's what's behind the mortgage mess, it's why consumer spending has turned anemic, etc. Personal consumption expenditures account for about two-thirds of economic activity in the U.S., so this is a really big deal. But even people with big loans to pay down still need to spend, so consumer spending is generally prone more to slowdowns than to the kind of sharp drops you'll see in, say, corporate investment spending.

Meanwhile, Corporate America, outside of the financial and housing sectors and a few old-line manufacturers, is in pretty good financial shape. It already had its big meltdown for the decade, back in 2001 and 2002. That doesn't mean companies won't tighten their belts if consumer spending stays weak. It does mean most of them probably won't be falling off any cliffs.

Then there's the rest of the world, which so far is chugging along reasonably well as the U.S. sputters. This has been a boon to U.S. exporters. Exports only make up 12.7% of GDP, but they're up almost 10% in inflation-adjusted terms over the past year, so that certainly helps. The economic strength elsewhere is also helping keep oil prices high, which isn't so great.

Put at all together and you get a mostly weak picture, but a muddled one. Which is pretty much what today's jobs report delivered.