💾 Archived View for gmi.noulin.net › mobileNews › 705.gmi captured on 2023-01-29 at 08:32:04. Gemini links have been rewritten to link to archived content
⬅️ Previous capture (2021-12-05)
-=-=-=-=-=-=-
2008-10-16 06:40:49
By ADAM GELLER, AP National WriterWed Oct 15, 6:09 PM ET
The U.S. has not endured a deep and prolonged recession in more than a quarter
century enough time for many Americans to forget what one feels like.
But unlike the last two relatively short recessions, this one could be much
longer and more severe, potentially bringing with it anxiety and job losses not
seen in many years.
"In thinking about recessions, people will naturally think back to the last
couple" in the early 1990s and in 2001, said Paul Ashworth, senior U.S.
economist at Capital Economics in Toronto. "What they should be looking back at
is further."
That requires dredging up memories of the economic slides in the 1970s, when an
Arab oil embargo starved the nation of energy, and the early 1980s, when
unemployment and inflation soared.
The last recession coinciding with the collapse of the tech stock bubble and
the terrorist attacks of 2001 lasted just eight months. It was known more for
the slow "jobless" recovery that followed than for the depth of the downturn.
Many economists agree that the nation won't be so fortunate this time.
"I don't think we can escape damage to the real economy," former Federal
Reserve Chairman Paul Volcker said this week in Singapore. "I think we almost
inevitably face a considerable recession."
The Fed's current chairman, Ben Bernanke, delivered a more measured, but
similarly grave assessment to economists, saying the recent financial turmoil
"may well lengthen the period of weak economic performance and further increase
the risks to growth."
The signs of stress are starting to show: The U.S. has lost 760,000 jobs since
late last year, and retail sales in September plunged 1.2 percent, the largest
drop in three years.
Every recession is driven by its own dynamic and psychology. The current slump
started with the collapse in the housing market and got worse with sharp
restrictions on credit that pressured consumer spending and businesses.
That is a different environment from 1973, when an oil crisis was the culprit,
squeezing U.S. businesses and consumers. In the early 1980s, raging inflation
and high interest rates took their toll.
Both periods saw millions of Americans out of work. In 1975, the unemployment
rate peaked at 9 percent. In 1982, it jumped to 10.8 percent.
Most economists forecast a sharp increase in the number of people who lose
their jobs. But they do not see it leading to unemployment on the scale of
either the 1970s or 1980s.
The jobless rate is currently at 6.1 percent, and many economists expect it to
rise to about 7 percent early next year a level the country has not seen
since 1993. Some analysts believe the unemployment rate could eventually climb
close to 8 percent, which hasn't happened since 1984.
But this recession could begin to feel like those of the past not just because
of lost jobs, but because of fear about the future.
In the 1980s, as the nation struggled with inflation and a transition from a
manufacturing economy to one based on services, Americans had "a huge amount of
uncertainty and anxiety that lingered on for a long period of time," said Bart
van Ark, chief economist for The Conference Board.
"That element I find comparable to what we're seeing today, but some of the
underlying dynamics are very, very different."
In 1973, the U.S. economy had been growing for three years and unemployment had
dropped to well below 5 percent.
Then, on Oct. 6, Egyptian and Syrian forces launched surprise attacks on
Israeli-held territory while Jews were observing Yom Kippur. Arab members of
OPEC soon cut off shipments of oil to the U.S. and other countries that
supported Israel.
Oil prices rose sharply and forced rationing of tight supplies. Drivers lined
up at filling stations on odd or even days depending on the number on their
license plates. Some stations ran out of gas.
A recession is typically defined as a period in which the economy shrinks for
two quarters in a row. In the 2001 recession, the quarters weren't even
consecutive.
But in the 1970s, the recession stretched on for a year and a half. Nearly 2.2
million people lost their jobs. By the end of 1974, the Dow Jones industrial
average had lost more than 40 percent of its value. At the same time, the
nation was focused on the Watergate scandal and the vacuum left by President
Nixon's resignation in August 1974.
The economy began to recover in spring of the next year. But inflation, which
had eased as the oil embargo was lifted, spiked again. By 1980, prices were
rising at an annual rate of 13.5 percent.
Anxious about a hostage crisis in Iran and the Carter's administration
inability to tame inflation, Americans elected Ronald Reagan president. But it
wasn't at all clear how his plan to increase defense spending would cure the
economy's ills.
Volcker, appointed by Carter to lead the Fed in 1979, took on inflation by
sharply raising interest rates. It worked, but made life even more difficult
for consumers at a time when the nation was doubtful about its economic future.
"That was the feeling at that time: hopelessness, in terms of how do we get out
of this situation," said Anthony Campagna, author of "The Economy in the Reagan
Years."
The next recession did not come until 1990, as preparations for the Gulf War
drove up the price of oil. But the 1.6 million jobs lost was much less severe
than in the previous downturn, and this one lasted for just eight months.
When it recovered, the economy staged its longest expansion on record 10
years of growth. The next recession, in early 2001, was similarly short-lived.
The number of people out of work rose sharply, but compared with some past
recessions, unemployment rate was relatively mild.
The fact that the last two recessions were so short, the damage relatively
limited and the preceding good times so long has helped many people forget the
pain of a more severe economic slump.
"We've become a little spoiled, actually," said Todd Knoop, a professor at
Iowa's Cornell College and author of "Modern Financial Macroeconomics: Panics,
Crashes and Crises."
That could make this recession feel particularly intense.
Said Jay Bryson, global economist at Wachovia Corp.: "I think no matter how you
measure it, this coming recession will be worse than the last one."