Officials Wonder: Was Recession Real?

Amid burgeoning signs of recovery, U.S. Treasury and White House officials Monday questioned if the downturn in the world's largest economy actually constituted a recession.

"There is now a chance that there may not even have been one (a recession)," Randall Quarles, the U.S. executive director at the International Monetary Fund and designated assistant Treasury secretary for international affairs said at a banking conference in Washington.

"The recession has been extraordinarily mild and short."

The official arbiter of business cycles, the National Bureau of Economic Research, declared in November that a U.S. recession began in March of last year.

A recession is loosely defined by some economists as two consecutive quarters of declining gross domestic product but the NBER uses a broader definition which involves indicators such as employment, income and industrial production and which does not use GDP as a yardstick.

According to the NBER, some, but not all, of the periods it has defined as recessions have comprised two or more quarters of economic contraction. Since the positive data for the fourth quarter made the third quarter the only negative one, some economists have questioned the NBER's characterization.

The economy grew at a surprisingly fast 1.4 percent annual rate in the fourth quarter compared to a contraction of 1.3 percent in the third quarter.

Randall Kroszner, a member of the White House's Council of Economic Advisers, also questioned at the same conference whether the economy had ever entered recession.

"Some people use two quarters of negative growth. We haven't had that," Kroszner said.

The two officials said the economy is poised for slightly stronger growth, with Quarles saying the "building blocks for recovery are already in place."

Kroszner said the effects of monetary policy easing -- the Federal Reserve has cut rates 11 times over the last year to try and kick-start the economy -- are mostly still to come.

But Kroszner warned of downside risks to the positive outlook evident in weak industrial output numbers for January and the last employment report which showed job losses in many sectors. He pointed out that even though the unemployment rate fell, this was mainly due to a shrinking workforce and not to the fact that more people found jobs.

Quarles said the world needs more than just one engine of growth and urged Japan, the No. 2 global economy, to do more to tackle bad loans and deflation.

Kroszner said that the Japanese government has made steps in the right direction but he too said more needed to be done.

he added that he expects to see the European economy improve in the next year but said the recovery would not be as strong as that forecast in the United States because the European Central Bank has not moved as aggressively as the Fed to cut interest rates.