Recession is Officially Here, Says Group
- Dec 01, 2008
Who decides when it’s a recession? The Business Cycle Dating Committee of the nonprofit research organization known as the National Bureau of Economic Research, that’s who, at least as far most economists and parts of the U.S. government are concerned. Today the organization issued the following statement: “The committee determined that a peak in economic activity occurred in the U.S. economy in December 2007. The peak marks the end of the expansion that began in November 2001 and the beginning of a recession. The expansion lasted 73 months; the previous expansion of the 1990s lasted 120 months.” So the economy’s been slowly circling the drain for all of 2008 (and actually going down the drain now), which should come as little surprise. The question now is when the trough of this particular recession is going to be, that is, the moment when expansion starts again. Being economists, not fortune-tellers, the NBER did not venture a prognostication on that question. Consumer spending may have seen short, sharp upward motion on Black Friday–those numbers haven’t been completely collected yet–but other economic numbers today aren’t so encouraging. According to the U.S. Department of Commerce, construction spending dropped by 1.2 percent in October compared with the month before, more than many analysts had expected. The size of the decline might have been a surprise, but not the fact that it was led by a decline in housing construction, which was down 3.5 percent in October, following a 0.5 percent decline in September. Nonresidential construction dropped 0.7 percent in October. More bad numbers: The Institute for Supply Management noted this morning that its manufacturing index declined to 36.2 in November from 38.9 in October, the lowest reading since May 1982. Any reading below 50 means that manufacturing activity is shrinking, and readings below 41 are generally associated with recessions, according to Tempe, Ariz.-based ISM. The stock market didn’t seem to take these bad numbers well, with the Dow Jones index dropping rapidly after the opening bell, and then plodding along in a downward direction all day, losing 679.95 points by the closing bell, or 7.7 percent. The S&P 500 was down 8.93 percent and the Nasdaq down 8.95 percent. Temporary good news for Chicago-based General Growth Properties Inc., the nation’s second-largest mall owner: the company has received a two-week extension on $900 million in mortgage loans due the day after Thanksgiving, and it says that it’s seeking a further extension. Last week, Pershing Square Capital Management, a hedge fund, bought more than 20 million shares of the retail REIT, giving it a 7.5 percent stake, and has options to buy 33.4 million more shares. Tomorrow the Big Three automakers will be back on Capitol Hill to offer skeptic lawmakers their plans on not being another AIG. Perhaps the CEOs will fly coach this time. Ahead of the big day, Ford Motor Co. says that it might sell Volvo, which it acquired for $6.4 billion in 1999. The company has already sold Aston Martin, Jaguar and Land Rover; Volvo is the last of its Euro-luxury brands.