It’s now official: RECESSION
Announcement sends Wall Street plunging
WASHINGTON — It’s official. The U. S. economy has been in a recession for the past year.
The news, coupled with other economic reports, caused stocks to plummet on Wall Street. The Dow Jones Industrial Average plunged nearly 700 points.
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.
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 GDP contracted by 0.2 percent at an annual rate in the fourth quarter of 2007, but that drop was followed by 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 President 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.
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” that he would support additional intervention if necessary to end the recession.
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.
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 1.2 percent in October, much more than the 0.9 percent drop analysts expected.
Adding to the bad news, the Institute for Supply Management’s monthly index of manufacturing activity fell to 36.2 from October’s 38.9. The reading is worse than Wall Street economists’ expectations of 38.4, according to a survey by Thomson Reuters. A figure below 50 indicates the sector is contracting.
The November reading is the lowest since May 1982, the Tempe, Ariz.-based ISM said, when the economy was in the midst of a painful recession.
“Manufacturing is in freefall, with output collapsing,” Ian Shepherdson, chief U. S. economist for High Frequency Economics, wrote in a note. “We see no prospect for near-term improvement.”
On Capitol Hill, House Speaker Nancy Pelosi, D-Calif., vowed Monday to have a massive economic stimulus package ready on Inauguration Day for Obama’s signature.
That measure — which could total a whopping $500 billion — would bankroll big public works projects to generate jobs, provide aid to states to help with Medicaid costs and provide money toward renewable energy development. Crafting such a colossal recovery package would mark a Herculean feat: Congress convenes Jan. 6, giving lawmakers just two weeks to complete their work if it is to be signed on Jan. 20.
Despite all the attempts at reassurance by lawmakers and Bush administration officials, investors were not comforted, and responded by sending Wall Street plunging Monday.
The Dow fell 679.95, or 7.70 percent, to 8,149.09, its fourth-largest point drop ever. The S&P 500 index dropped 80.03, or 8.93 percent, to 816.21. This was the worst point and percentage drop for both blue chip indexes since Oct. 15.
The Nasdaq composite index fell 137.50, or 8.95 percent, to 1,398.07. The Russell 2000 index of smaller companies fell 56.07, or 11.85 percent, to 417.07.
Only 218 stocks were in positive territory on the New York Stock Exchange while 2,693 declined. Volume came to 1.62 billion shares.
Overseas, Japan’s Nikkei stock average fell 1.35 percent. At the close, Britain’s FTSE 100 was down 5.19 percent, Germany’s DAX index was down 5.88 percent, and France’s CAC-40 was down 5.59 percent.
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