The Australian media and much of the financial services industry has recently been eating up acres of newsprint and clogging the airwaves with endless discussion about whether or not the domestic economy is in recession.

Why there should be such a big debate about this is not clear given that most of Australia’s major trading partners in America, Europe and Asia are suffering their deepest recessions in decades. This, after all, is why interest rates have been cut to historic lows and why fiscal policy has been eased so much.

Yet the financial media spends an inordinate effort telling investors to “buckle up, assume brace position, prepare for the worst” (pick your cliché) ahead of the statistical confirmation of an event that markets have already priced in.

Witness the amount of column inches devoted to Australia’s recent March quarter national accounts. The story ahead of time was that these would provide final confirmation that the global recession had arrived in Australia.

But hey presto, the numbers actually showed the economy recording positive growth in the March quarter, which meant Australia, for now, had avoided meeting the technical definition of a recession – two consecutive quarters of negative quarterly GDP growth.

This made Australia one of the best performing developed economies in the world so far in 2009, at least according to the government statistician.

To be sure, the ups and downs of the GDP figures and the train-spotting arguments about whether or not we are in a recession will provide several more weeks of fodder for the talking heads on television.

But investors can take comfort from the view that markets are actually pretty good about immediately incorporating new information and expectations about the economy into live prices.

Switching one’s portfolio around in response to the latest economic indicators is inviting trouble. Not only are these numbers in the price, but they reflect what happened in the economy two to three months ago.

Whether or not Australia is in a recession, the economy has certainly slowed. Confidence is down, business balance sheets are under pressure, the labour market has cooled and investment plans have been scaled back.

But that is why the share market has fallen so far since late 2007. In aggregate, investors have discounted prices to reflect slower activity, lower expected future profits and uncertainty around those outcomes.

This is another way of saying that the market leads economic activity. It tends to fall in anticipation of a recession and starts to recover before the recession is formally over.

Some speculators think they know better about economic turning points than the market in aggregate and try to position their portfolios to take advantage of that. But few succeed.

What that means for long-term investors is that, aside from how events in the real economy impact on them personally, arguments about the quarterly GDP statistics are fairly academic.

They are great fodder for politicians, journalists and market economists in creating talking points on television or in newspapers, but for the vast bulk of people they are meaningless – unless you really like playing with numbers.

Tags: economy, recession