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2008-12-02 09:28:13
By MARTIN CRUTSINGER, AP Economics Writer Martin Crutsinger, Ap Economics
Writer Mon Dec 1, 6:41 pm ET
WASHINGTON It's official. The U.S. economy has been in a recession for the
past year.
The start of the downturn was announced Monday by the National Bureau of
Economic Research.
The NBER a private, nonprofit research organization said its group of
academic economists who determine business cycles met and decided that the U.S.
recession began last December.
By one benchmark, a recession occurs whenever the gross domestic product, the
total output of goods and services, declines for two consecutive quarters. The
GDP turned negative in the July-September quarter of this year, and many
economists believe it is falling in the current quarter at an even sharper
rate.
But the NBER's dating committee uses broader and more precise measures,
including employment data. In a news release, the group said its cycle dating
committee held a telephone conference call on Friday and made the determination
on when the recession began.
The White House commented on the news that a second downturn has officially
begun on President George W. Bush's watch without ever actually using the word
"recession," a term the president and his aides have repeatedly avoided.
Instead, spokesman Tony Fratto remarked upon the fact that NBER "determines the
start and end dates of business cycles."
"What's important is what is being done about it," Fratto said. "The most
important things we can do for the economy right now are to return the
financial and credit markets to normal, and to continue to make progress in
housing, and that's where we'll continue to focus."
Many economists believe the current downturn will be the most severe since the
1981-82 recession. The country is being battered by the most severe financial
crisis since the 1930s as banks struggle to deal with billions of dollars in
loan losses.
The Bush administration won approval from Congress on Oct. 3 for a $700 billion
rescue package for the financial system. Bush said in an interview with ABC's
"World News" to be aired Monday that he would support additional intervention
if necessary to end the recession.
"I'm sorry it's happening, of course," Bush said, referring to a global
financial crisis that has eliminated millions of jobs and damaged retirement
accounts.
Federal Reserve Chairman Ben Bernanke said Monday that further interest rate
cuts were possible but he cautioned that there were limits to how much such
action will be able to revive an economy expected to remain weak well into next
year.
"Although further reductions ... are certainly feasible, at this point the
scope for using conventional interest rate policies to support the economy is
obviously limited," Bernanke said in a speech to business executives in Austin,
Texas. The Fed is widely expected to cut a key interest rate when officials
next meet on Dec. 15-16.
Treasury Secretary Henry Paulson said the Bush administration is looking for
more ways to tap a $700 billion financial rescue program and will consult with
Congress and the incoming administration of President-elect Barack Obama.
"While we are making progress, the journey ahead will continue to be a
difficult one," Paulson said in a speech to business executives in Washington.
"But I have confidence that we are pursuing the right strategy to stabilize the
financial system and support the flow of credit into our economy."
In his remarks Monday, Paulson did not provide specifics on what type of
programs the administration had under consideration other than to say that it
was looking at ways to boost capital into financial institutions.
Asked about the NBER panel's decision that the U.S. fell into a recession in
December 2007, Paulson said that he didn't think that decision was going to be
"big news" to Americans who have been dealing with the slowdown for some time.
He said that a year ago, the administration could see that the economy was
slowing significantly and that officials had moved very quickly to respond to
the challenges. That was apparently a reference to the $168 billion economic
stimulus plan that Paulson helped push through Congress last February.
Two new reports provided a grim snapshot of how steep the economic slump is
becoming. The Commerce Department reported Monday that construction spending
fell by a larger-than-expected 1.2 percent in October, while the Institute for
Supply Management said its gauge of manufacturing activity dropped to a 26-year
low in November.
The GDP contracted by 0.2 percent at an annual rate in the fourth quarter of
2007, but that that drop was followed growth in the first two quarters of this
year, partially boosted by the distribution of millions of economic stimulus
payments.
But employment, one of the measurements tracked by the NBER, has been falling
since January.
The NBER decision means that the economic expansion lasted from November 2001
until December 2007. Economic expansions peak and recessions begin in the same
month, according to the NBER's dating methods. Founded in 1920, the NBER has
more than 1,000 university professors and researchers who act as bureau
associates, studying how the economy works.
The decision on the recession means that during the eight years that Bush has
been in office, the country has seen two recessions. The first lasted from
March 2001 until November that year.
The current recession, which will be a year old this month, has already lasted
longer than the 10-month average for recessions in the post World War II
period. Two downturns, the 1973-75 slump and the 1981-82 recession, both lasted
for 16 months, the longest stretch during the post-war period.
Both the 2001 recession and the 1991-92 recession lasted eight months.
The last expansion, from November 2001 to December 2007, lasted six years and
one month. The longest expansion in U.S. history was the 10 years of
uninterrupted growth from March 1991 till March 2001.
Among the monthly statistics the NBER uses are payroll employment, which peaked
in December of last year and has been falling every month since then. Other
figures it uses include GDP, industrial production, personal incomes and
wholesale and retail trade.
The chair of the NBER dating panel is James Poterba, an economist at the
Massachusetts Institute of Technology and the president of the NBER. NBER
officials said there was no reason that the Friday after Thanksgiving was
chosen for the committee to hold its conference call other than that was one
day when all panel members were available.