If we were to go by the traditional definition of a recession, the US is still not in recession! The technical definition of recession requires an economy to contract in two consecutive quarters. That is yet to happen. The US economy contracted 0.5% in the third quarter of 2008, but in the previous quarter it grew 2.8%. So technically, the US is not yet in recession. However, the US economy is expected to shrink substantially in the current quarter and then the US will technically be in recession.
Economics apart, the US economy seems to have been undergoing great economic pain since late 2007. Bearing this in mind, the National Bureau of Economic Research (NBER) has stated that the US entered recession in December 2007. The NBER has made this statement based on a more practical approach it follows to assess a recession. Away from the traditional two quarter approach, the NBER evaluates key monthly economic indicators including employment, industrial output, personal income and sales. Based on an analysis of these indicators, the NBER concluded that the US is already in recession.
In any case the last quarter of the year is close to finishing and all signals suggest that the economy is going to contract. Thus even as per the traditional definition, the US will be in recession soon. NBER suggested indicators point to a similar economic situation as well. Private employers in the US slashed 250,000 jobs in November, which was the highest ever in the last seven years. The loss in November followed a record 240,000 jobs lost in October. What is disturbing is that job losses have been consistent for the last four months, which is a clear indicator of deepening economic woes. As more and more jobs are slashed, the purchasing power of the Americans will diminish further, leading to a contraction in demand resulting in further slowing of manufacturing, which in turn will lead to further layoffs. The vicious cycle of falling demand leading to contraction in both production and employment does not bode well for an economy already in trouble. Labor department data supports the trend and puts the unemployment rate at 6.5%, which was the highest in the last 14 years. The overall job loss this year stands at a staggering 1.2 million jobs. As per official data, manufacturing contracted at the highest rate in November since the last 26 years. The vicious cycle seems to be a reality and playing havoc with the US economy.
To reverse the vicious cycle into the virtuous cycle, the American government has announced a slew of measures including tax breaks, bailout packages and easing of monetary policy. The recession has also led to an easing of oil and commodity prices, which is helping contain inflation and is favorable for an easy monetary regime of lowered interest rates.
It is as yet hard to say if these measures are taking effect as the only positive indicator was the easing of the dollar-LIBOR, suggesting that the liquidity crunch for inter bank lending has eased a bit. Beyond this, positive signals are keenly awaited. However, experts are of the opinion that the US economy should start reversing the negative trend and be out of recession by mid 2009. Only time will tell if the experts are really expert at what they do and say!!