It's Official, We are in a Recession
Well, you can stop wondering. It took seven economists 11 months to decide what should seem obvious given all the foreclosures, bank failures, stock market losses, and layoffs - the United States is officially mired in a recession.
Still, Monday's declaration by the National Bureau of Economic Research that the economy has been in retreat since last December sent Wall Street into a bearish fit that knocked nearly 9 percent off the S&P 500 index on Monday. Experts also believe that this severe recession will last well into 2009.
This is the second time the bureau has declared an economic slump during President Bush's eight-year tenure. It previously declared the U.S. in recession from March to November 2001 in a decline brought on by a stock market crash that struck Silicon Valley exceptionally hard.
The bureau made a subtle but significant shift in declaring the 2001 downturn and the one now under way as recessions. In both instances, it placed more weight on declines in payroll employment and real income than in the past. The traditional definition of a recession had been two quarters of declines in the gross domestic product.
Many economists believe the current downturn could be the worst since the recession of 1980-1982, when the U.S. unemployment rate soared above 10 percent. The nationwide jobless rate is currently 6.5 percent.
The bureau's cautious approach can have big political ramifications. Not until December 1992 did it declare that the 1990 recession had ended in March 1991 - well before Bill Clinton drove the first President Bush out office with his "It's the economy, stupid!" mantra.
Here is what a few of the pundants had to say about the news:
US Treasury Secretary Henry Paulson said treasury is actively involved in developing new programs to strengthen lending. It will discuss these programs with the Congress and the new administration and is still examining foreclosure mitigation ideas. Journey ahead is going to be difficult, he added.
Paulson said, “Today we continue to work through a severe financial crisis. While we are making progress the journey ahead will continue to be a difficult one. 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. We expect banks to increase their lending as a result of these efforts and it is important that they do so. This lending won’t materialize as fast as any of us would like. But it will happen much faster as confidence is restored as a result of having used the tarp to stabilize the system and to strengthen the capital in our banks.”
Ben Bernanke, Chairman, US Federal Reserve said, "Regarding interest rate policy although further reductions in the current federal funds rate target of 1% are certainly feasible, at this point the scope for using conventional interest rate policy to support the economy is obviously limited."
