Oxymoronic Growth

That so many want to classify the economy today as being in recession is probably more a function of dour sentiment than economic reality.

Story Highlights:

  • "Growth-recession" is a terminology used by some to describe current economic conditions—a recession with economic growth.
  • This definition is an oxymoron—an economy cannot simultaneously grow and recess.
  • A recession is always possible, but in our view, it's more likely GDP continues to beat too-dour expectations, even if it's only with mild growth.
  • Growth is really a global economic phenomenon, and the world continues to grow.


We've written quite a bit about the economy in the past few weeks, because it seems folks are persistently dour on America's economic prospects and fear a recession. But the fear seems very disconnected. GDP has been positive—not gangbusters, but positive. Yet folks seem determined to find some way to define growth as a recession.

Jobs Report Will Provide Clues on Growth and Inflation
By Anton Troianovski, The Wall Street Journal

This article states the recession many fear we are experiencing today "might not be the kind ‘you read about in school'—in which gross domestic product, the sum of all economic output, contracts for two quarters in a row….We're sort of in what we call the growth-recession camp."

No wonder folks are confused. We may have forgotten some of what we learned in school, but we remember enough to know the term "growth-recession" is what is called an "oxymoron." In the past few weeks, we've increasingly seen arguments a recession can occur even while the economy grows. That'd be quite a trick—by definition, an economy cannot simultaneously grow and recess. (It reminds us somewhat of the grousing about a "jobless recovery" during the robust growth in 2003 and 2004 when the US added 3.3 million jobs.* Will this be a "growthful recession"?) Perhaps "growth-recession" is less an actual phenomenon than a description of how some folks feel right now.

But what exactly is a recession? There are differing definitions. Some cite the two quarters of negative growth definition. That's probably fine, though we prefer the definition used by the National Bureau of Economic Research (NBER). The NBER defines a recession as a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.

No matter how you slice it, GDP growth is generally accepted as a primary driver for economic cycles. Could recession be a risk today? Yes, it's certainly always a risk. Could a recession be underway right now? Sure—after growing 1% in Q1, GDP might have turned negative. But in our view, it's more likely GDP will continue to beat too-dour expectations, even if it's only with mild growth.

The fact is, GDP isn't a perfect measure of growth. It's broadly cited, but it's hardly the same as sticking a thermometer in the economy and getting an accurate reading. GDP is a conglomeration of assumptions, surveys, and averages—all of which can be faulty or distorted.

Consider this: What is the real difference between 1% GDP growth and 0% GDP growth in any single country, even one as large as the US? Or between 1% and 2%? While those 100 basis points might mean a great deal from a sentiment standpoint, from an economic standpoint, it's not much. And when we're looking at just a single quarter of growth, those numbers become less significant still. What matters most is what the overall world is doing, and the overall world continues to grow.

Faulty though it may be, until a better economic gauge is developed, GDP will still be used to measure economic growth and help identify periods of recession or expansion. Sure, some parts of the economy may contract despite overall growth. And a recession can still contain some economic bright spots. But the terms "recession" and "expansion" are reserved to measure overall health. Although new terminology can help define sentiment, it can't alter reality. Of course, that won't stop folks from trying. And why do they call it jumbo shrimp anyway?

*Sources: US Census Bureau News and Commissioner's Statement on the Employment Situation: December 2004

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*The content contained in this article represents only the opinions and viewpoints of the Fisher Investments editorial staff.