If history is a guide, the recession of 2008 is now unavoidable. And if the good times have really ended, they were never that good to begin with.
If history is a guide, the recession of 2008 is now unavoidable.
The dismal jobs report released Friday showed overall employment to be lower than it was three months ago. Every time such a slump has occurred since the early 1970s, a recession has followed — or was already under way.
And if the good times have really ended, they were never that good to begin with. Most American households are still not earning as much annually as they did in 1999, once inflation is taken into account. Since the Census Bureau began keeping records in the 1960s, a prolonged expansion has never ended without household income having set a record.
For months, policymakers and Wall Street economists have been predicting, and hoping, that the aggressive series of interest-rate cuts by the Federal Reserve would keep the economy growing, despite the housing bust. But the possibility seemed to diminish by the hour on Friday:
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• Shortly after 8 a.m., the Fed announced yet another measure meant to unlock the struggling credit markets — another $200 billion in short-term loans this month to banks.
• At 8:30, the Labor Department reported that the nation lost an estimated 63,000 jobs in February, far worse than most analysts had expected.
• Almost immediately, the economists at JPMorgan Chase — who only last week had told clients they thought the economy was still growing — reversed course and said a recession appeared to have started earlier this year.
• Stocks fell when the markets opened at 9:30, recovered and then fell again, with the Dow Jones industrial average losing 146.70 to end the week down 3 percent. The Nasdaq composite index fell 8.01 to 2,212.49, the lowest the tech-dominated index has finished since September 2006.
Traders became even more confident, based on the price of futures contracts, that the Fed would cut its benchmark interest rate three-quarters of a point, to 2.25 percent, on or before policymakers meet March 18. The Fed has already cut its benchmark short-term interest rate five times since September, and such reductions typically take six months or more to wash through the economy.
“The question was always ‘Would the economy hang on by its fingernails?’ ” said Ethan Harris, the chief U.S. economist at Lehman Bros. Based on the employment report, Harris said, “there’s a very high probability that we’re in a recession now.”
The jobs situation
The Labor Department’s report showed the second consecutive monthly decline in jobs, and third straight drop for private-sector jobs.
Even the one apparent piece of good news in the employment report was a mirage. The unemployment rate fell to 4.8 percent, from 4.9 percent in January, but only because more people stopped looking for work and thus were not counted as unemployed.
Over the past year, the number of officially unemployed has risen by 500,000, while the number of people outside the labor force — neither working nor looking for a job — has risen by 1.3 million.
Employment has risen by 100,000, but even that comes with a caveat: There are also 600,000 more people working part time because they could not find full-time work, according to the Labor Department.
“A booster shot”
Responding quickly to the jobs report, President Bush asked for patience to let an economic-stimulus package he signed last month start to work. Democrats on the campaign trail just as quickly faulted the president’s economic policies, and congressional leaders pressed for a new economic package to pump money into unemployment benefits, as well as road construction and other job-creating infrastructure projects.
“Losing a job is painful, and I know Americans are concerned about our economy,” Bush told reporters. “So am I. It’s clear our economy has slowed, but the good news is we anticipated this and took decisive action to bolster the economy.”
Last month’s $152 billion package of tax breaks for workers and businesses, Bush added, “provided the economy with a booster shot” whose impact will be felt “over the coming months.”
While placing faith in the stimulus plan, White House officials said they are also considering other measures, including a mortgage-paydown program in which the federal government would offer low-interest loans to financially pressed homeowners to bring down their mortgage costs and forestall defaults.
Much of the economic stimulus put in place by the government will begin to take effect in the next few months, which does leave open the possibility that the country can still escape a recession. Policymakers have reacted quite quickly to this slowdown, relative to previous ones.
The Treasury Department will begin sending out rebate checks — of up to $1,200 for couples, plus $300 per child — in May, as part of the stimulus package negotiated by Bush and Democrats in Congress.
White House officials have predicted in recent weeks that the economy would avoid recession, but after the release of the jobs report, they offered a subtly different forecast. At the White House on Friday, Edward Lazear, the chairman of Bush’s Council of Economic Advisers, parried reporters’ questions about whether he now thought the economy would slip into a recession.
Instead, he said, “I’m still not saying that there is a recession.”
The administration expects growth in the current quarter to be slower than it had previously thought, before accelerating this summer. “Obviously, we are concerned,” Lazear said. But he remained hopeful that “growth will pick up, and pick up quickly.”
The official judges’ view
The most commonly cited arbiter of recessions is the National Bureau of Economic Research, a group of academic economists that is based in Cambridge, Mass. (Lazear referred to the group at his briefing, saying it would not be clear whether there had been a recession until the bureau had made an announcement.) The seven economists who sit on the bureau’s recession-dating committee began exchanging e-mail messages late last year about whether the economy was on the verge of a recession. But committee members said Friday that it remained too early to know.
The bureau defines a recession as a significant, protracted decline in activity that cuts across the economy, affecting measures such as income, employment, retail sales and industrial production.
“Given that definition, the committee can’t possibly call a recession until it has been going on for a while,” said Christina Romer, an economics professor at the University of California, Berkeley. The committee did not announce the end of the last recession, which came in November 2001, until more than a year and a half later. Robert Gordon, a Northwestern University economist on the committee, said any announcement about the start of a new recession was unlikely before the last few months of 2008 at the earliest.
The inflation rate
Late in the day, a Treasury Department statement sought to talk up the economy. With oil hovering around $105 a barrel and the cost of wheat, corn and other commodities driving up food prices, the Treasury stressed that the core inflation rate remained contained at 2.5 percent.
It was an odd choice for positive news. In effect, this measure of inflation ignores the record prices that Americans are paying at the gas pump and the grocery store. The latest reading of the consumer price index, which measures what Americans pay at the cash register, was almost double the core rate and stood at 4.3 percent for the 12-month period that ended in January.
Information from The New York Times, The Washington Post, The Associated Press and McClatchy Newspapers is included in this report.