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Richard Drew/AP

America Officially in Recession

December 01, 2008 05:24 PM
by Anne Szustek
The National Bureau of Economic Research, the official arbiter of U.S. economic cycles, announced Monday that America has been in recession for a year.

U.S. Recession Turns One Year Old This Month

The National Bureau of Economic Research, a nongovernmental group of economists that studies market cyclicity, announced that the current economic slump has indeed been a recession—for going on a year.

“The committee determined that the decline in economic activity in 2008 met the standard for a recession,” the NBER said a statement published on the group’s Web site. The key factor that spurred the NBER’s judgment was the 1.2 million jobs lost during 2008.

“Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity,” the NBER said in its statement. “The committee believes that domestic production and employment are the primary conceptual measures of economic activity.”

Morgan Stanley and Goldman Sachs analysts, among others, project that the economy will shrink by 5 percent during fourth-quarter 2008, reports Bloomberg. This past quarter saw a contraction of 0.5 percent, following 2.8 percent growth during the second quarter of the year.
The last official recession, according to the NBER, lasted from March to November 2001. Between then and now, the country saw what the panel judged as 73 months of economic expansion.

Prior to the eight months in 2001 during which the economy was officially sluggish, the country had seen some 10 years of economic growth, the longest-ever period of economic prosperity.

Background: The language of recession

One possible reason as to why the recession was announced at this time was the conclusion of the 2008 election cycle. NBER head and Stanford University professor Robert Hall told Reuters in early October that the group had “not entered the territory of even tentatively considering” whether the country had reached the end of a period of economic growth that began in late 2001.

Hall admits that “We have been subjected to political pressure, which I’m not going to talk about. This has been an issue but we’ve stood tall on that.”

According to the NBER, a recession is “significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.”

But having a clear definition doesn’t mean that economists agree.

In late October, former Federal Reserve Chief Alan Greenspan that America is “in the midst of a once in a century credit tsunami” and that unemployment was likely to see a “significant rise.”

And Paul Volcker, chairman-designate of Obama’s newly formed Economic Recovery Advisory Board and Greenspan’s predecessor as former Fed chief said at an Oct. 14 seminar in Singapore, “House prices in the U.S. are still declining. There are still more losses to come there. The economy, I believe, is in recession.”

Greenspan himself said that the United States was “on the brink” of a recession on June 24, the day before the Fed announced it would be holding interest rates steady.

In early May, however, Treasury Secretary Henry Paulson said that the economy was on the rebound following what he called an “inflection point.” Paulson’s words suggested that the economy had indeed bottomed out.

Such questions over defining bearish market trends are nothing new. According to The New York Times, “The Bush Administration, the Federal Reserve and many private economic forecasters say that the … impact on oil prices and consumer confidence, caused the recession, and they say it is now coming to an end.”

That article ran in April 1991.

Related Topic: Surfing the financial tsunami

The Sept. 24 entry on findingDulcinea’s blog pays homage to the upsurge in seismology- and meteorology-themed hyperbole that has roiled financial media in concert with the topsy-turvy capital markets. Market watchers are advised to take shelter from “financial hurricanes.”

Reference: Economic cycles


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