by Beth Ann Bovino
This was a record-breaking year, though there was almost no good news. As it came to a close, most welcomed its departure. Unfortunately, we expect more tough times ahead in 2009, with no turn around likely until later next year. The current financial crisis has deeply frightened consumers and businesses, and in response they have sharply pulled back spending, making the recession even more severe. Moreover, the usual recovery tools used by governments, monetary and fiscal stimuli, are relatively ineffective given the circumstances. The economy won’t likely reach bottom till spring of next year, with risk of an even bigger recession more pronounced.
The National Bureau of Economic Research officially declared that the U.S. has been in recession since last December, only surprising those living at the North Pole. The downturn is expected to approach the slump of 1981-82 and be even longer, bottoming out in the spring of next year, which would make this the longest postwar recession. After a strong rebate-check related second quarter, four consecutive quarters of negative growth is expected through the second quarter of 2009, with risk that the fourth quarter will be down 6% based on current data. Employment dropped for the eleventh consecutive month in November, with 2.1 million jobs lost over last year, the biggest 12-month job loss since the 1982 recession. Financial markets remain in distress. Housing is still in recession, with November housing starts falling to the lowest pace since World War II. Not surprisingly, both business and consumer confidence remain weak.
The spendthrift habits of American consumers are a likely casualty of the crisis. Consumers and banks are becoming more cautious, and we expect household debt to decline from record levels, relative to income and to assets. The household saving rate is likely to increase, how much will help determine how quickly the economy revives.
