Economic Signs Point to Longer, Deeper Recession
Decline Began a Year Ago, Experts Declare; Wall Street Reacts With Huge Sell-Off
Tuesday, December 2, 2008; Page A01
The U.S. economy entered a recession one year ago, a group of the nation's leading economists said yesterday, and new evidence that the downturn will be deep and prolonged sent the stock market plummeting.
The Dow Jones industrial average dropped 7.7 percent, or 680 points, on bleak economic reports, including one that showed that manufacturing activity in November was weaker than it had been since 1982. Investors plowed money into U.S. Treasury bonds, seen as safe havens in uncertain times.
Meanwhile, Federal Reserve Chairman Ben S. Bernanke indicated in a speech that he is inclined to keep cutting interest rates and using novel approaches to try to contain damage from the downturn. Treasury Secretary Henry M. Paulson Jr. said he is designing new programs to strengthen the financial system.
The pledges to take aggressive action come as the recession appears to be getting worse.
"Right now, we still seem to be in an accelerating downslope of this economic cycle," said Ethan Harris, head of U.S. economic research at Barclays Capital.
Economists with the nonprofit National Bureau of Economic Research announced yesterday that that cycle began in December 2007, long before the health of the financial system deteriorated this spring. The group's Business Cycle Dating Committee, made up of seven academic economists, determines when a recession begins and ends and is considered the arbiter of such things.
The committee defines a recession as "a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators."
Assuming that the country is still in a recession -- the committee makes its announcements on a delayed basis, after examining definitive economic data -- the downturn will be the longest since at least the 1981-82 recession, which lasted 16 months. The current recession, at 12 months and counting, is already longer than the eight-month downturns the nation experienced in 1990-91 and 2001.
There is little doubt that the country is still in a recession, said economists not associated with the NBER. Economic data in recent months suggest that conditions are getting worse, not better.
Bernanke himself said yesterday that "economic activity appears to have downshifted further in the wake" of the deepening financial crisis in September and that "even if the functioning of financial markets continues to improve, economic conditions will probably remain weak for a time."
Most economists have considered it a foregone conclusion that a recession has been underway for months but have debated when it began. Employers started shrinking their payrolls at the end of last year, and many other measures of economic activity worsened then. But gross domestic product grew in the first six months of the year, and job losses have accelerated since August.
The business-cycle committee, chaired by Stanford University economist Robert Hall, relied heavily on employment data in making its call. Job growth turned negative in December, but for the first several months of the year, the economy was declining only modestly by most measures. It was only after problems in financial markets intensified in September that economic conditions deteriorated significantly.