Country in recession since Dec 2007, debate remains as to how long and deep it will be
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(WASHINGTON) The US economy sank into recession in December 2007, the arbiter of the nation's business cycles declared on Monday, and the downturn could be the worst since World War II.
The National Bureau of Economic Research (NBER) said its business cycle dating committee members met on Friday and concluded that the economic expansion that started in November 2001 had ended. The previous period of economic expansion, which ended in 2001, lasted 10 years.
The current recession, which many economists expect to persist through the middle of next year, is already the third longest since the Great Depression, behind only the 16-month slumps of the mid-1970s and early 1980s.
'I think that we've got a ways to go, that this is going to be probably a deep and long recession,' Jeffrey Frankel, a Harvard University economist who sits on the NBER's committee, told CNBC television. 'It could be the worst post-War recession. We don't know yet.'
The NBER does not define a recession as two consecutive quarters of decline in real gross domestic product (GDP), as is the rule of thumb in many countries. Instead, it looks for a decline in economic activity, spread across the economy and lasting more than a few months.
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The current downturn was particularly tricky to define because GDP remained positive in the first half of 2008. The NBER said its committee looked at payrolls, which peaked in December 2007 and declined in every month since then, as well as real GDP and other data to determine when the recession started.
'The committee determined that the decline in economic activity in 2008 met the standard for a recession,' the NBER said in a statement. 'All evidence other than the ambiguous movements of the quarterly product-side measure of domestic production confirmed that conclusion.'
The White House acknowledged the NBER's declaration, but said that did not change its course on coping with the financial crisis that has raged since August 2007. 'The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that's where we'll continue to focus,' White House spokesman Tony Fratto said.
George W Bush is the first president since Richard Nixon to preside over two recessions.
Several key Democratic lawmakers said the NBER's pronouncement underscored the urgent need for another dose of government spending to kick-start the economy.
'The announcement simply makes official what we have long known - with rising costs of living, rising unemployment, record foreclosures and depleted savings, we must do more to help families make ends meet,' Senate Majority Leader Harry Reid said.
Lawrence Summers, one of Barack Obama's top economic advisers, said the pace of the downturn was 'accelerating'.
'That is why President-elect Obama has set as his top priority passing an economic recovery plan,' he said.
Democrats in the House of Representatives will likely seek a stimulus package costing about US$500 billion, a Democratic aide said on Monday.
Economists polled by Reuters expect the US economy to contract in the first half of 2009, and then grow modestly in the latter part of the year.
If the economy continues to contract through June, this would most likely rank as the longest recession since the 1930s. -- Reuters
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