Business

The Economic Damage of Recession News

An employee on duty at the Baldor Electric Co. factory in St. Louis in June. The government reading on U.S. gross domestic product released Friday was better than economists expected. (Jeff Roberson/Associated Press)
An employee on duty at the Baldor Electric Co. factory in St. Louis in June. The government reading on U.S. gross domestic product released Friday was better than economists expected. (Jeff Roberson/Associated Press)

(New York Times) – Real gross domestic product (G.D.P.) in the United States shrank by 1 percent in the first quarter of the year. What made this announcement seem so significant?

We already knew that the economy did not perform well in the first part of the year — the Commerce Department’s Bureau of Economic Analysis initially estimated G.D.P. growth at 0.1 percent — and that early economic estimates are often revised substantially as more data become available.

The key difference is the direction of change. A shrinking economy is far more scary — and newsworthy — than a slow-growing one. In this case, the G.D.P. revision prompted a wave of coverage focusing on the fact that growth was negative. On Vox.com, for instance, Danielle Kurtzleben began her article this way: “Uh oh: the US economy just shrank for the first time in three years.”

Distinctions like these matter. Consumers often overweight the importance of arbitrary thresholds like zero growth. That’s why used cars with just over 100,000 miles sell for significantly less than those with just under 100,000 miles and why marathoners work especially hard to finish under half-hour thresholds like 3:30.

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