Seeing an End to the Good Times (Such as They Were) - New York... http://www.nytimes.com/2008/03/08/business/08recession.html?sq=...
March 8, 2008
NEWS ANALYSIS
Seeing an End to the Good Times (Such as They Were)
By DAVID LEONHARDT
If history is a reliable 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 already been 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 new record.
For months, policy makers 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 almost by the hour on Friday.
Shortly after 8 a.m., the Fed announced yet another measure meant to unlock the struggling credit markets. At
8:30, the Labor Department released the unexpectedly poor jobs report. 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 Standard & Poor 500-stock
index closing down 0.8 percent. 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, when policy makers
meet on March 18.
“The question was always, ‘Would the economy hang on by its fingernails?’ ” said Ethan Harris, the chief United
States economist at Lehman Brothers. Based on the employment report, Mr. Harris said, “there’s a very high
probability that we’re in a recession now.”
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 thuswere
not counted as unemployed by the government.
Over the last 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 who
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Seeing an End to the Good Times (Such as They Were) - New York... http://www.nytimes.com/2008/03/08/business/08recession.html?sq=...
are working part time because they could not find full-time work, according to the Labor Department.
“The decline in the unemployment rate,” said Joshua Shapiro, an economist at MFR, a research firm in New
York, “should not be viewed as good news.”
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. Policy makers 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 President Bush and Democratic leaders in Congress. 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.
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 P.
Lazear, the chairman of Mr. 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 does expect growth in the current quarter to be slower than it had previously thought, before
accelerating this summer. “Obviously, we are concerned,” Mr. Lazear said. But he added that he remained
hopeful that “growth will pick up, and pick up quickly.”
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. (Mr. 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 like 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 D. Romer, an economics professor at the University of California, Berkeley. “There is no way to know if
the downturn will be sufficiently long-lasting until it has lasted for a while.”
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 J. 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.
Recent recessions have inevitably brought inflation-adjusted income declines for most families, which would be
particularly painful given what has happened over the last decade. For a variety of reasons that economists only
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partly understand — including technological change and global trade — many workers have received only
modest raises in recent years, despite healthy economic growth.
The median household earned $48,201 in 2006, down from $49,244 in 1999, according to the Census Bureau. It
now looks as if a full decade may pass before most Americans receive a raise.
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March 8, 2008
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