U.S. economy is in recession
The group charged with making the official declaration says recession began in December 2007.
Reporting from Washington — The economy's yearlong downturn, officially declared a recession Monday, could last well into next year or even beyond, challenging the government to devise new responses as traditional methods show limited results.
The National Bureau of Economic Research, the private body charged with determining the onset of a recession as well as its endpoint, said Monday that the current downturn met its definition of a recession: "a significant decline in economic activity spread across the economy, lasting more than a few months."
The downturn began, the bureau said, at the end of last year as businesses started slashing jobs -- which they have done every month this year.
The group did not say how long the recession might last, but the stock market reflected widespread pessimism. After a widely followed index of U.S. manufacturing activity fell to its lowest level in 26 years, the Dow Jones industrials tumbled 679 points, or 7.7%, and the Standard & Poor's 500 index plunged 8.9%.
"This downturn promises to be the worst since the Great Depression in the 1930s," said Joshua Shapiro, chief U.S. economist at forecasting firm MFR Inc. "We've only just started. I can't see bottoming out until sometime in 2010."
The slide in stock prices ended a five-day rally, the market's strongest in seven decades, built on hope that the incoming administration of President-elect Barack Obama could turn the economy around.
"The market got ahead of itself last week," said Scott Anderson, senior economist with Wells Fargo & Co. in Minneapolis. "But we're back into our funk again. The fundamentals of the economy still look like things are going to weaken still further over the next few months."
A psychology of fear has gripped businesses and consumers and is likely to prolong the recession, said Lee Ohanian, a professor of economics at UCLA.
"This one has a potential to be longer and deeper than other postwar depressions," he said. "People are very, very scared and worried. In my opinion the government has created much more uncertainty about the economy than it should have done. So it's really hard to tell how long this recession could last."
Government officials reiterated that they would do what was required to turn the economy around.
"While we are making progress, the journey ahead will continue to be a difficult one," Treasury Secretary Henry M. Paulson said.
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