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US 'may be in longest recession' since WWII

(China Daily)
Updated: 2008-12-03 08:02

The US economy, now officially in recession, may be in the midst of the longest slump in the post-World War II era as job losses mount and credit dries up.

The economic slump began in December 2007 when payrolls reached a peak, the business cycle dating committee of the National Bureau of Economic Research, a private, nonprofit group of economists based in Cambridge, Massachusetts, said. The last time the US was in a recession was from March through November 2001, according to NBER.

"We're going on 12 months already, and we're just getting started," said Stephen Stanley, chief US economist at RBS Greenwich Capital in Greenwich, Connecticut. 'We're looking at some pretty severe numbers for the fourth quarter, and the first quarter of 2009 will be pretty bad as well. The economy isn't going to turn around definitively until the credit markets unclog."

The NBER designation means the US was the first country to have slipped into a contraction. While definitions differ, the economies of both the euro area and Japan fell into a slump in the second quarter of this year, making it the first simultaneous recession in the three regions in the postwar era.

The longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months, from August 1929 to March 1933.

"This may be referred to as the Great Recession," because of its length, said Norbert Ore, chairman of the Institute for Supply Management's factory survey. "It looked like we were headed for a shallow recession earlier in the year because of higher energy prices. With the meltdown in the financial sector, it has become something more serious."

American manufacturing contracted in November at the steepest rate in 26 years, the ISM said. The Tempe, Arizona-based group's report came as factory indexes in China, the UK, euro area, and Russia all fell to record lows.

Federal Reserve Chairman Ben S. Bernanke, a former member of the NBER panel, said the economy "will probably remain weak for a time" and the Fed may use unconventional methods, such as buying Treasury securities, to spur growth.

"We have gone through in the last year a remarkable set of events, ranging from housing market to credit market to financial market shocks," James Poterba, president of the NBER and an economics professor at the Massachusetts Institute of Technology, said in an interview. "The collection of shocks is a very rare coincidence. It is not terribly surprising you might get a longer-than-average downturn."

Job losses

The loss of 1.2 million jobs so far this year was the biggest factor in determining the starting point of the US recession, the NBER said. By that measure, the contraction probably deepened last month.

Payroll employment probably fell by 325,000 in November, the most since the last recession, according to the median forecast of economists surveyed by Bloomberg News ahead of a Labor Department report due on Dec 5. The jobless rate is projected to increase to 6.8 percent, the highest level since 1993.

US employers cut 240,000 jobs in October, a 10th consecutive decline. The unemployment rate rose to 6.5 percent, the highest level in 14 years, according to Labor Department statistics.

"It is clearly not going to end in a few months," Jeffrey Frankel, a member of the NBER committee and a professor at Harvard University, said.

Agencies

(China Daily 12/03/2008 page17)