Markets Take a Tumble as NBER Confirms U.S. in Recession
The NBER is an official body that tracks economic cycles, and according to its latest report, the U.S. has in fact been in recession since December 2007. This announcement by the NBER serves to confirm what many analysts have believed for some time and they anticipate that markets will continue to be subject to extreme volatility as there is seemingly no end in sight to the financial crisis. This was backed up by Federal Reserve Chairman Ben Bernanke who said that, despite the government’s efforts to get money flowing again, the economy will continue to be weak for some time. Treasury Secretary Henry Paulson noted that the downturn is significant and the federal government is likely to expand the financial rescue programs currently being implemented.
To arrive at the conclusion that the United States is in a recession, the NBER looks at a number of factors over a period of time, thereby being able to pinpoint when the recession actually began and this is why the declaration of a recession typically comes some time after the starting point. One of the factors considered is the labor market, which in this case has been deteriorating throughout 2008. Employers have cut jobs by 1.2 million in the first ten months of 2008, with economists estimating that the loss of an additional 325,000 jobs will be reported by government for November. The NBER also considers real personal income, industrial production, wholesale and retail sales and the gross domestic product. While talk of a recession is unsettling to say the least, White House Deputy Press Secretary, Tony Fratto, emphasized the need to focus on the steps being taken to get the U.S. economy back on track.
Senate Majority Leader, Harry Reid, said in a statement that due to factors such as the rising costs of living, record foreclosures, rising unemployment and depleted savings, the government needs to do more to help American families make ends meet. In line with this, the Senate intends to have a plan to present to the White House on the inauguration of Barack Obama as the President of the United States in January.
Although the economic situation is dire, there are those who believe the recession will not turn into a depression and given time the recession will run its course. Among these cautious optimists is Lakshman Achuthan, managing director of Economic Cycle Research Institute, which tracks leading economic indicators believed to signal four or five months in advance a change in direction for the economy, and despite the fact that those indicators are continuing to fall at an alarming rate, he believes that this will prove to be a severe recession but will not turn into a depression. How long the recession will last remains to be seen.