It’s Official: Recession Started One Year Ago


December 2, 2008

It’s official: for the last year, the United States economy has been in recession.

The evidence of a downturn has been widespread for months: slower production, stagnant wages and hundreds of thousands of lost jobs. But the nonpartisan National Bureau of Economic Research, charged with making the call for the history books, waited until now to weigh in.

In a statement released Monday, the members of the group’s Business Cycle Dating Committee — made up of seven prominent economists, most from the academic sector — said that the economy entered a recession in December 2007.

“A recession is 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,” the members said in a statement. “A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough.”

The committee noted that the contraction in the labor market began in the first month of 2008 and said that the declines in most major indicators, like personal income, manufacturing activity, retail sales, and industrial production, “met the standard for a recession.”

“Many of these indicators, including monthly data on the largest component of G.D.P., consumption, have declined sharply in recent months,” they wrote.

The announcement came as the stock market fell sharply, its first decline in five sessions. The Dow Jones industrial average was off more than 430 points or 4. 9 percent as the last hour of trading begin. The Standard & Poor’s 500-stock index was down 5. 9 percent.

Analysts said that after last week’s gains — the biggest five-day rally in decades — a sell-off was to be expected.

“You had the biggest weekly gain in 30, 35 years,” said Anthony Conroy, head equity trader at BNY ConvergEx Group. “Some profit-taking is warranted.”

Still, Monday’s losses were striking. Stocks were dragged down by double-digit declines in shares of financial firms. Citigroup, a source of concern on Wall Street of late, dropped 11 percent; American Express and Bank of America were off about 10 percent.

“Financials led the rally on the way up, and they’re leading on the way down,” Mr. Conroy said.

Investors may also be playing defense ahead of Friday’s report on the job market, one of the most important monthly indicators of the health of the economy. Analysts expect that employers shed more than 300,000 jobs in November, underscoring the problems facing American workers and businesses.

This is the first official recession since 2001, when the economy suffered after the bursting of the technology bubble. The period of expansion lasted 73 months, from November 2001 to December 2007.

Monday brought its own share of poor economic news. The manufacturing industry suffered its worst month since 1982, according to a closely watched index published by the private Institution for Supply Management. The index fell to 36.2 in November from 38.9 in October, on a scale where readings below 50 indicate contraction.

That was the worst monthly reading since 1982, and a sign that the worldwide credit crisis was taking a serious toll on American businesses. New orders fell sharply, although export orders held steady from October.

“However you look at the numbers, the message is the same: manufacturing is in free fall, with output collapsing,” Ian Shepherdson of High Frequency Economics wrote in a note to clients. “We see no prospect for near-term improvement.”

A separate report from the Commerce Department showed that spending on construction projects fell 1.2 percent in October, after staying unchanged in September. Private construction dropped 2 percent with a sharp drop in the residential sector, offering few signs of relief from the housing slump.

The declines on Wall Street came after stocks in Europe and most of Asia moved lower, as investors refocused attention on a gloomy economic outlook.

Benchmark indexes in Paris and Frankfurt were down more than 4 percent, and London’s FTSE-100 dipped 3.6 percent. The declines were minor compared with the 13 percent increase that European stocks enjoyed last week.

“We’re giving back some of the appreciation in equities that we gained in the last few weeks,” said Robert Talbut, a fund manager at Royal London Asset Management.

“I think in terms of valuations there are some good deals starting to appear,” Mr. Talbut said. “But valuations are never enough in themselves.”

Any serious market recovery would require a determined response from global governments, he said, but investors have lots of questions about how the policy measures that have already been announced will work.

Investors were also troubled by mounting evidence that consumer spending in the United States would fall sharply this holiday shopping season, choking off one of the prime fuels of American economic growth. Retailers received more business than expected over the Thanksgiving shopping weekend, but the steep discounts they used to lure customers could undermine profits.

Black Friday sales were 3 percent higher than the year before, according to ShopperTrak, which tracks the industry.

Asian stocks ended mostly lower. The Tokyo benchmark Nikkei 225 stock average fell 1.4 percent, while the S.& P./ASX 200 in Sydney fell 1.6 percent.

The Kospi index in Seoul declined 1.6 percent. But the Hang Seng index in Hong Kong rose 1.6 percent, and the Shanghai Stock Exchange composite index rose 1.3 percent.

United States government debt was strong amid the poor economic outlook and expectations that the Federal Reserve would cut interest rates again soon.

The yield on the two-year Treasury note, which moves in the opposite direction of the price, fell to a record just below 0.95 percent, while the yield on the 10-year note fell to 2.86 percent, the lowest on record.

Investors expect the Bank of England, the Reserve Bank of Australia and the European Central Bank to cut interest rates this week amid evidence that inflation is easing and growth flagging. “Evidence continues to build suggesting that these central banks have further aggressive monetary easing to undertake in order to stem the risks of a dramatic shift in price expectations going forward,” Derek Halpenny, a foreign exchange strategist at Mitsubishi UFJ in London, wrote in a note to investors.

The Federal Reserve’s main rate is aimed at 1 percent currently, though the effective rate in the market is 0.5 percent because of the enormous quantity of cash that the Fed has pumped into the market to keep foundering financial institutions afloat.

Crude oil futures for January delivery fell $4.54, to $49.88 a barrel.

David Jolly contributed reporting.

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