US slides in slowdown in December 2007; Longer than average

The United States economy officially sank into a recession last December, which means that the downturn is already longer than the average for all recessions since World War II, according to the committee of economists responsible for dating the nation’s business cycles.

In declaring that the economy has been in a downturn for almost 12 months, the National Bureau of Economic Research confirmed what many Americans had already been feeling in their bones. But private forecasters warned that this downturn was likely to set a new postwar record for length and likely to be more painful than any recession since 1980 and 1981.

The Dow Jones Industrial average plummeted 443.80 points (5.03%) to 8,385.24 at 1807 gmt after five winning sessions. The techheavy Nasdaq slid 94.57 points (6.16%) to 1,441.00 and the broadmarket Standard & Poor’s 500 index dropped 53.86 points (6.01%) to 842.38. Part of the drop may have reflected profit-taking after last week’s surge in stock prices,but it also came in response to new data showing that manufacturing activity dropped to its lowest point in 26 years.

Both the chairman of the Federal Reserve, Ben S Bernanke, and the Treasury secretary, Henry M Paulson Jr, vowed to use all the tools at their disposal to restore a measure of normalcy to the economy.

Bernanke, speaking to business leaders in Austin, Tex, said it was “certainly feasible” to reduce the Fed’s benchmark overnight lending rate below its current target of 1%, signaling that the Central bank would lower the rate at its next policy meeting in two weeks.

Investors reacted to Bernanke’s remarks by pouring money into longer-term Treasury bonds, which briefly pushed already-low yields on 10-year and 30-year Treasuries to new record lows. Investors appeared to be reacting mainly to the clear signal from Bernanke that the Fed was preparing to pump money into the economy by buying up longer-term bonds.

Paulson, in a speech in Washington on Monday, vowed to look at new ways to use the $700 billion bailout fund that Congress approved in October. In Congress, Democratic leaders are drawing up a huge new fiscal stimulus plan that could total more than $500 billion. Democrats said they planned to have the measure ready as soon as Congress convened with a strengthened Democratic majority in January. Meanwhile, Democrats could take up legislation next week that would provide financial assistance to the automobile industry.

President Bush, increasingly the odd man out in the last weeks of his term, said his administration would do whatever was necessary to safeguard the system.

Many analysts said they saw no signs yet that the economy was nearing a bottom. American consumers, who for decades have been the country’s tireless source of growth when all else failed, have cut back on their spending more sharply than at any time since the early 1980s.

In officially declaring that the current recession began in December 2007, the National Bureau of Economic Research paid little heed to the fact that the nation’s GDP product actually expanded slightly in the first and second quarters of 2008.

Source: Agencies