Like we needed to be told. The gurus of such things, the U.S. National Bureau of Economic Research (NBER) announced yesterday, finally, that the US has been in a recession since December 2007. The Dow promptly celebrated by dumping nearly 680 points in a day’s trading, shedding some 7% of its total value, giving up all the gains of the five ‘up’ days and the manufacturing statistics are simply horrible. Way to state the obvious!
The NBER defines a recession as “a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP growth, real personal income, employment (non-farm payrolls), industrial production, and wholesale-retail sales.” Alternative ways of telling when a rescission is afoot is a decline for two or more successive quarters of a year in gross domestic product (GDP), or negative real economic growth – others believe this is to simplistic. Most say this will be a doozey, rivaling those in the early 80’s or even worse.
Another view derives from the Index of Leading Indicators, a US economic index used to estimate future economic activity, calculated by The Conference Board, Inc. a New York-based non-profit, non-governmental organization, which determines the value of this index from crunching numbers for the values of ten key variables. Historically, and not surprisingly, the variables have turned downward before a recession and upward before an expansion. Their website now contains a special section: “Working Through The Crisis,” warning, in less than calming terms: “We are experiencing a series of events unprecedented in the history of the global financial markets. In times like these – when the economic picture is unclear and heightened levels of uncertainty and business risk exacerbate an already volatile operating environment – The Conference Board stands more ready than ever to help.
Steve Benen (Washington Monthly) adds: “The NBER announcement shows that our current downturn has lasted a year (and counting), and only two of the modern recessions (November 1973 to March 1975 and July 1981 to November 1982) have lasted this long. It suggests the current recession is very likely to be the longest since the Great Depression. We knew all of this, of course, but it’s reassuring, I suppose, to get official confirmation.” We each must find our own reassurance.
Mr. Bernanke implied a further lowering of the Fed overnight lending rate below 1% in two more weeks and we will take one more step closer to a zero rate. 30-year Treasury bonds hit a record low for a moment and analysts are sure we have not seen the bottom.
Five, six, even seven Trillion Dollars are now being discussed as the total amount that the Federal Government either has spent or has pledged to spend, to rein in the economic wipeout gripping our country and the world. Interestingly, China has vowed to do everything necessary to deal with their own economic crisis and, to combat the decline in metals prices, has promised to buy many millions worth of copper to jump start those commodities prices. The NYT’s quote of the day is: “”We will rewrite the record book on length for this recession,” says Allen Sinal, an economic analyst at Decision Economics in Lexington, Mass. Even the Los Angeles-based Bob Baker Marionette Theater’s shows are in trouble and need a Bail Out.
If the economic guru’s are correct then we are already through a year of what will be a multi-year recession, through at least 2009 and on into 2010 and possibly beyond.
It all depends on your economic school of thought as to the only really relevant question – what to do next? Keynesian economists will push for government deficit spending to spark economic growth; Supply-siders will call for tax cuts promoting business capital investment; Laissez-faire economists will hold that the government not interfere with those lately out-of-control natural market forces, and; last but not least, the Populist economists will push for goodies for consumers like subsidies or lower-bracket tax reductions. I think the Keynesians are winning so far, judging from both Bernanke and Paulson’s approach as well as the still-forming Obama economic advisors’ view. I wish them luck with this.