The American economy lost 63,000 payroll jobs in February, following a decline of 22,000 jobs in January, more than the initial estimate for January of 17,000. That was decidedly bad news and most Wall Street forecasters are predicting that gross domestic product is declining in the first quarter of 2008.

So we’re in a recession, right? Not so fast. We might still avoid a recession, defined as two consecutive quarters where the economy contracts instead of grows. The argument that a recession has already begun is respectable, but not conclusive.

Since 1952, we’ve never had two consecutive months of declining payroll jobs without a recession. In February, not only did the private sector experience a net loss of jobs, as those abolished exceeded those created, but the index of total weekly hours for production workers in the entire economy declined by one-tenth of one percent. Shrinkage of the workweek is a portent of layoffs.

The argument for a recession, however, is not based only on present employment conditions, but on the concern—some would say likelihood—that weak conditions in banking and housing will continue to spill over into the rest of the economy.

American Enterprise Institute resident fellow Desmond Lachman told me, “I am super concerned about the viability of the American banking system, with international loan losses now estimated in the $750 billion to $1 trillion range, of which the American banks must have at least a half. It would seem to me that we are in for a prolonged period of loan contraction on the part of the banks that will deepen the recession.”

The market for complex credit derivative securities, essentially bets about which way interest rates will go, has risen to a value of $45 trillion, or more than three times GDP. The hedge funds’ share of that market has grown to 30%, substantial exposure for those high-risk funds. If some large hedge funds cannot meet their obligations, this could cause major problems in the banking system.

House prices continue to decline, reducing equity in American homes. As prices decline, homeowners who find that their houses are worth less than they owe sometimes stop paying and walk away from the homes. That leads to more foreclosures and downward pressure on house prices, a vicious cycle.

For all these reasons, arguments that a recession has begun sound convincing. Yet an equally credible case can be made that we’re facing just one quarter of negative growth, the January-March quarter, and that GDP growth will resume in the spring and beyond.

One major reason is that in May the U.S. Treasury will begin to mail $107 billion of tax rebates, as part of an economic stimulus package just signed into law by President Bush. Second, the law gives businesses $51 billion this year for writing off newly-purchased equipment. That will encourage extra investment.

One can quibble over whether this package is the most effective way of stimulating the economy. But the write-off incentives will encourage businesses to move equipment purchases into 2008, and the cash will raise household spending by $40 billion in 2008 and 2009, according to congressional tax experts. This might just give enough of a kick to second quarter GDP to produce renewed growth, averting a recession.

In addition, Federal Reserve Chairman Ben Bernanke has expressed his willingness to use monetary policy and the lending tools of the central bank to keep the economy on an upward path.

Although the economy is shedding jobs, average wages grew by three tenths of a percent last month, and by 3.7% over the past year, above the rate of the GDP price index. Unemployment declined to 4.8%, and the count of “long-term unemployed,” people unemployed for 27 weeks and more, actually fell.

The banking crisis is getting all the headlines, but by some measures non-financial businesses continue to get the credit they need. Federal Reserve data show that commercial and industrial bank loans continued to expand through 2007, rather than contracting, as one might expect in a credit crunch.

My colleague at the Hudson Institute, senior fellow John Weicher, says that housing prices aren’t doing as badly as news reports suggest. The broadest price index, the Office of Federal Housing Enterprise Oversight Home Price Index, shows that median prices declined by 0.3% from December 2006 to December 2007, in contrast to the Case-Shiller index, which reports that prices declined by 9% during 2007.

Mr. Weicher believes that the OFHEO index is more accurate because it covers the entire country, whereas Case-Shiller covers eight states (including the District of Columbia) entirely, parts of 30 states, and has no representation in [the] remaining states. The old joke goes that economists have forecast 10 of the past five recessions. We won’t know until later this year, when the second quarter GDP figures are finalized, whether we are in one now. All we know is that the economy is going through a rough patch and the near-term outlook is uncertain.

Mrs. Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is a senior fellow at the Hudson Institute. She can be reached at dfr@hudson.org.