Washington: The United States officially joined the ranks of the recession-hit economies, but debate is still raging on how long and how deep the downturn will be.
Business Cycle Dating Committee of the National Bureau of Economic Research (NBER), the panel recognised as the official arbiter of business cycles, said it made the determination the recession began in December 2007.
Although a recession is generally defined as two consecutive quarters of declining activity, the panel has its own criteria for determining a downturn, including data on employment, income and industrial output.
Because of the lag time in officially declaring a recession, some analysts say the worst is generally over by the time the news becomes public.
But John Ogg, analyst at 24/7 Wall Street, said it may not be the case this time: “We still think more pain is on the way.”
That message was hammered home with a survey showing the US manufacturing sector sank to its lowest level of activity in November since 1982.
The Institute of Supply Management said its manufacturing index slumped 2.7 points to 36.2%, far below the 50% level that separates expansion and contraction.
Analysts pointed out the overall economy will have trouble escaping deep recession with manufacturing so weak.
Many analysts have been saying the recession has been raging for months.
“So far in 2008, employers have slashed 1.2 million jobs, and the bad news is expected to continue when we get employment data for November this Friday,” said Michael Fowlkes, analyst at Investor’s Observer.
Augustine Faucher at Moody’s Economy.com said his firm expects the downturn to last through the first half of 2009 and to be “the worst of the post-World War II era.”
“Even with a substantial stimulus package, unemployment is likely to peak close to 9.0 percent in early 2010,” he said.
According to official government data, the US economy contracted at a 0.2% pace in the fourth quarter of 2007 but grew 0.8% in the first quarter and 2.8% in the second quarter of 2008. It then contracted 0.5% in the third quarter, based on a provisional estimate.
But the gross domestic product (GDP) data may have been skewed by tax rebates that stimulated consumer spending, according to analysts.
A major factor in determining recession is employment, which has been declining since last December, the panel said. Other factors include monthly data on income, manufacturing and retail sales.
The NBER makes no forecast on how long a recession will last, but said that in the past they have run from six to 18 months. The panel said it has no definition of the term “depression.”
Federal Reserve chairman Ben Bernanke said meanwhile the current economic situation bears “no comparison” to the much deeper crisis of the 1930s Great Depression.
“I’ve written books about the Depression and been very interested in this since I was in graduate school, there’s no comparison,” Bernanke told an audience in Austin, Texas.
Brian Wesbury at First Trust Portfolios said there are signs the recession may end soon because of how it developed.
“This time around, the recession is not due to tight monetary policy, higher tax rates, or protectionism,” he said.