US economy officially in recession, productivity indexes show sharp declines
02 Dec 2008
The US is now officially in recession. The country's National Bureau of Economic Research (NBER) on Monday said that the US has been in a recession since December 2007, making official what most Americans have already believed about the state of the economy. To add to the bad news, American manufacturing contracted in November at the steepest rate in 26 years, leading Europe and Asia into an industrial slump as the effects of recession reach far and wide.
The NBER is a private group of leading economists charged with dating the start and end of economic downturns. It typically takes a long time after the start of a recession to declare its start because of the need to look at final readings of various economic measures.
The NBER said that the deterioration in the labour market throughout 2008 was one key reason why it decided to state that the recession began last year. It also looked at real personal income, industrial production as well as wholesale and retail sales. All those measures reached a peak between November 2007 and June 2008, the NBER said. In addition, the NBER also considers the gross domestic product, which is the reading most typically associated with a recession in the general public.
The current recession is one of the longest downturns since the Great Depression of the 1930's. The last two recessions (1990-1991 and 2001) lasted eight months each, and only two of the 10 previous post-Depression downturns lasted as long as a full year, according to the NBER.
To add to the gloom, manufacturing gauges in three major world economies showed sharp contractions in November, according to new data showing fresh recessionary signals as the financial crisis takes a global toll.
In the US, manufacturing activity contracted for the fourth consecutive month, as a gauge of price pressures hit an all-time low, according to a survey of corporate purchasing managers released Monday by the Institute for Supply Management. The November ISM index decreased to 36.2 per cent, the lowest reading since May 1982.
The new orders index fell to 27.9 per cent in November, the lowest level since June 1980, from 32.2 per cent. The production index fell to 31.5 per cent, the second lowest reading on record. The prices index, which gauges what proportion of manufacturers are paying higher prices, fell to 25.5 per cent in November, the lowest reading for the index since May 1949, showing that "commodity prices continue to decline at a rapid rate," according to ISM. Just 8 per cent of firms said they were paying higher prices in November. In October, the prices index was at 37.0 per cent.
The employment index declined to 34.2 per cent in November, reaching the lowest level since 1991, from 34.6 per cent in October. On Friday, the government will report on non-farm payrolls for November; analysts are looking for a loss of 350,000 jobs, which would be the largest drop in almost three decades. The order backlogs index fell to 27 per cent, the lowest level since ISM began tracking the data in January 1993, from 29.5 per cent.
Elsewhere, the purchasing managers' indexes for the euro zone and for the UK fell to record lows. And in China, a gauge of the country's manufacturing activity in November showed the sharpest contraction in the survey's history, which began in 2004. (See: Global recession drags Chinese manufacturing to record low)
