Jan. 16 (Bloomberg) -- The calendar flipped from 2007 to 2008, and just like that, the talk turned from if to when, how long and how deep.

Recession, that is. Will it be short and severe, long and shallow, or some combination of the two (short and shallow, long and severe)? Will the slump have a V- or a U-shaped bottom? Will the end of the expansion turn out to be December, January or some future month, once the committee entrusted with determining such things assigns a date?

While all business cycles share certain characteristics, they have features unique unto themselves. For example, every postwar recession experienced an outright decline in real consumer spending in at least one quarter -- except 2001's, where the increase in consumer spending never fell below 1 percent.

Then there's residential real estate, which, along with manufacturing, is the most interest-rate sensitive sector of the economy. Housing usually rolls over well before the economy; it leads us into the Promised Land of recovery as well.

Real residential investment barely missed a beat in the 2001 recession as low interest rates and lax lending standards conspired to provide a home of one's own for anyone who set foot in a mortgage lender's office. Small declines in the second and third quarters of 2000 and fourth quarter of 2001 show up as a blip on a graph compared with the more typical swan dive seen in previous cycles and at present. (Housing is making up for lost time.)

Separate but Equal

Most recessions are consumer driven, which makes sense since the consumer accounts for more than 70 percent of total spending. The 2001 slump, on the other hand, was driven by a sharp cutback in investment in equipment and software following a technology bubble, with too much money allocated to too much fiber-optic cable for which there was no possible use.

So what will the 2008 recession look like? Driven by home- loan defaults, falling home prices and cascading credit problems at financial institutions that have the potential to curtail lending to the rest of the economy, the recession may look something like the one in 1990-1991, which came on the heels of the savings and loan crisis.

It was commercial, not residential, real estate that was the villain back then, with banks and thrifts overextending themselves into areas they knew little about.

``Excess real estate lending, powered by rapidly rising rents and prices, rapidly occurred worldwide,'' said William Seidman, former chairman of the Federal Deposit Insurance Corp. and Resolution Trust Corp., the agency created to clean up the mess, at a 1997 symposium on the history of the '80s. ``But more that anything else, real estate lending became the fashion, the new banking idea of the times.''

New Old Idea

Sound familiar? The new banking idea of the current times -- investing in structured financial vehicles collateralized with pools of subprime loans -- is sending the biggest financial institutions overseas in search of additional capital. Yesterday, Citigroup Inc. and Merrill Lynch & Co. reported getting a combined $21 billion from investors, including the governments of Singapore and Kuwait.

The good news is, the 1990-1991 recession was short (eight months) and shallow, featuring a peak-to-trough decline in real GDP of 1.3 percent.

The bad news is, it took a long time for real estate, both commercial and residential, to recover, damping job growth through 1992. Some regions of the country remained depressed for years. In New England, for example, home prices didn't start rising until 1995, according to the Office of Federal Housing Enterprise Oversight's Home Price Index for New England.

Bad to Worse

The even worse news is that commercial real estate, where strong growth has been offsetting the collapse in the housing market, may be the next shoe to drop. The old maxim that retail development follows new housing is about to be tested in a case of new supply meets slack demand.

The Wall Street Journal reported last week that since 2005, ``developers in the U.S. have produced more retail space than office space, rental apartments, warehouse space or any other commercial real estate category.''

Projected retail demand ``will justify only 43 percent of the new space delivered this year and last,'' the Journal said, citing market-research firm Property & Portfolio Research Inc.

If lending standards to business were anything like those used to evaluate potential homeowners, there's going to be a lot of empty mall space across the country.

And what if retail demand underperforms expectations? The U.S. consumer has managed to shrug off a high debt burden and a low savings rate, but that may be changing. Retail sales fell 0.4 percent in December, and January chain store sales are off to an inauspicious start.

Income Fallacy

But incomes are still growing, some economists claim, as they do in every cycle (at least they're consistent).

Personal income is a coincident index at best and a lagging indicator at worst. As Northern Trust economist Asha Bangalore noted in a recent commentary, even the National Bureau of Economic Research, the official arbiter of business cycle peaks and troughs, recognizes its not-so-leading nature.

The peak in real personal income less transfer payments, one of four components the NBER's Business Cycle Dating Committee uses to track the economy, lagged behind the expansion peak in three of the last seven recessions, coincided with it in another three and led by one month in only one business cycle.

That doesn't mean it's a useless indicator, Bangalore says. The informational content is valuable -- after the cycle has peaked.

(Caroline Baum, author of ``Just What I Said,'' is a Bloomberg News columnist. The opinions expressed are her own.)

To contact the writer of this column: Caroline Baum in New York at cabaum@bloomberg.net.

Last Updated: January 16, 2008 00:01 EST