The US Economy Is Now Officially In Recession

Posted by Ronald Lee in December 2nd, 2008

On Monday, the first day of December, the Dow Jones stumbled nearly 680 points, following the global sell-off action, the Nikkei 225 dropped 1.3% in Tokyo, and the FTSE 100 fell more than 5% in London as economic reports from around the world compounded anxiety about a global recession.

The Dow Jones Industrial Average fell 679 points, or 7.7%, to finish at 8,149. The S & P 500 index fell 80 points, or 9%, to end at 816. The technology-heavy Nasdaq Composite slumped 137 points, or 9%, to 1,398.

The US economy has officially slipped into recession. Many economists think the downturn is far from over and maybe in the midst of the longest slump in the post World War II era as job losses mount and credit dries up. The news send US stocks tumbling down and calls for another economic stimulus program.

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. The current recession is expected to persist through the middle of next year.

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.

Wall Street financial institutions already had declared that the US recession began in December 2007, when there was a sharp increase in the US unemployment rate.

Other key barometers, such as payrolls and the jobless rate, have clearly been in a recessionary trend for most, if not all, of the year. Payrolls have fallen every month since January and the jobless rate is about two percentage points higher than a year ago.

Another key area, consumer spending, took longer to join the trend, but that’s largely because of the government’s massive fiscal stimulus plan, which sent out tax rebates to millions of Americans.

That boosted income and spending through the second quarter, but the effect quickly faded in the early summer when the government stopped mailing out checks. Consumer spending indeed shrank in the third quarter for the first time in almost two decades.

“The truth is, we are all caught in a great economic system which is heartless” - Woodrow Wilson

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