The worst U.S. recession since the Great Depression ended in June 2009, the National Bureau of Economic Research said today, as a slowdown in economic growth raises the possibility of another slump.
“We are still expanding, but disappointingly slowly,” Robert Hall, a Stanford University economics professor who heads the National Bureau of Economic Research committee charged with dating business cycles, said in an interview. “It’s still too early to tote up the cost, given that we are still far from recovered from its effects. It’s definitely the worst apart from the Depression, which was far, far worse.”
The decision came as Federal Reserve policy makers meet this week to consider whether new measures to boost growth are needed and the Obama administrations proposes additional fiscal stimulus. Bruce Kasman is among economists projecting the world’s largest economy will not grow enough to lower joblessness, which has been hovering near 10 percent.
“It’s a recovery that feels fragile, and still raises questions about the risks to its sustainability,” Kasman, chief economist at JPMorgan Chase & Co. in New York, said in an interview. “We’re seeing job growth, but it hasn’t been robust. A year from now, we expect the unemployment rate will be pretty much where it is.”
The odds of the economy falling back into another recession are about 25 percent, Kasman said.
“In determining that a trough occurred in June 2009, the committee did not conclude that economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity,” the Cambridge, Massachusetts- based NBER’s group said today in a statement. “The committee decided that any future downturn of the economy would be a new recession and not a continuation of the recession that began in December 2007.”
Stocks advanced, extending a three-week rally. The Standard & Poor’s 500 Index climbed 1 percent to 1,137.34 at 1:08 p.m. in New York.
Marked by a collapse in housing and sub-prime mortgage lending that triggered a global meltdown in financial markets, the 18-month downturn trailed Great Depression that lasted from 1929 to 1933, surpassing the 16-month contractions of 1973-75 and 1981-82. More than 8 million workers lost their jobs as a result of the recession, a slump that may take years to fix.
The possibility of a sub-par expansion poses a dilemma for the central bank’s policy-making Federal Open Market Committee when it meets tomorrow. The Fed’s difficulties are compounded by the fact that it has already cut the overnight interbank interest rate to near zero and FOMC members are divided about the costs and benefits of further easing through unconventional policies such as buying more bonds and increasing its $2.3 trillion balance sheet.
President Barack Obama during an hour-long town-hall discussion on jobs and the economy broadcast on CNBC television said the recession remains “very real” for those Americans still out of work. “The challenge is the hole was so deep, a lot of them are still having a hard time,” he said.
The administration has proposed a package of business tax breaks and infrastructure spending to accelerate economic growth, while saying the U.S. can’t afford to extend tax cuts to the wealthiest Americans.
Harvard University economics professor Martin Feldstein, another member of the NBER committee, said today that Obama’s proposal to allow tax cuts for the wealthy to lapse “is going to slow the economy down and could push the economy into recession again next year.”
“We should extend all of the Bush tax cuts for two years and we will have a clean slate and see where the economy is,” Feldstein said today in a radio interview on “Bloomberg Surveillance” with Tom Keene.
The economy and taxes will dominate the congressional agenda less than two months before elections that will determine control of the House and Senate. Obama is defending his economic policies against criticism from Republicans, who argue they haven’t been effective and have widened the budget deficit.
NBER’s Hall said the group wore political blinders in announcing the call today.
“We are studiously nonpartisan,” Hall said in the interview. “So much so that we do not consider the political implications of the announcements.”
Economic growth decelerated to an annualized 1.6 percent rate in the second quarter from 3.7 percent in the first and 5 percent in the last three months of 2009, according to the Commerce Department.
The world’s largest economy shrank 4.1 percent from the fourth quarter of 2007 to the second quarter of 2009, the biggest slump since the 1930s, revised figures from the Commerce Department showed in July. Household spending dropped 1.2 percent in 2009, the biggest decline since 1942.
The previous contractions in the post-World War II era lasted 10 months on average.
The business cycle committee was formed when Feldstein became president of the NBER in 1978. Feldstein has retired as president, a position now held by James Poterba, an economics professor at the Massachusetts Institute of Technology. Hall has chaired the committee, which currently has seven members, since its inception.
--With assistance from Shobhana Chandra, Vincent Del Giudice and Kate Andersen Brower in Washington, and Thomas R. Keene in New York. Editors: Carlos Torres, Christopher Wellisz
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