Recession?

There is a growing crowd of doomsayers warning us that the U.S. is already in a recession or that a nasty protracted downturn is just around the corner, but how exactly do we define let alone measure it? According to market consensus, a recession is defined as two consecutive quarters of decline in a country's Gross Domestic Product. Right up to this point, the data we have on the U.S. suggests a slowdown but the problem is that this data is heavily lagged (backward looking) and subject to revisions. That means we will not know if the U.S. is currently in a recession until at least a couple of months from now.
There are other "leading" indicators, however, that can provide precious clues as to the health of the economy. Employment figures such as jobless claims, retail sales, corporate earnings or even the stock market are good examples. The stock market index is particularly interesting because, unlike most other indicators, it is purely forward looking although it can be misleading (such as during periods of bubble formations). A bear market in stocks, defined as an extended period (usually a year) over which prices decline more than 20%, typically occur during periods of economic recession.
So, using these criteria, can we say that the U.S. is in an economic recession? The answer is far from clear. The broad S&P index, for example, is down 9% from its most recent peak (in this regard Japan would be more of a bear candidate than the U.S.). Other indicators such as retail sales, jobless claims and corporate earnings do show weakness, but nothing as serious as with the housing sector which is clearly in recession territory.
With inflation pressure showing signs of easing and further economic deterioration, the balance is tipping towards downside risk on growth rather than the upside risk on prices. No wonder the market is placing a 36% probability for a 75bp cut for the end of the month (up from 0% last week).