It's Official... We're In A Recession
Monday, December 01, 2008SUSIE GHARIB: It's official: the U.S. economy is in recession. That news hammered stocks here on Wall Street today. The Dow plummeted almost 680 points. The NASDAQ plunged 137 or 9 percent and the S&P 500 also fell by 9 percent. Investors dumped stocks after the National Bureau of Economic Research announced today the economy slid into recession in December of 2007. The NBER, the official organization that identifies business cycles, said the economic expansion that began in November of 2001 lasted 73 months and ended late last year. The group based its decision primarily on gross domestic product, which turned negative in the third quarter of this year and employment data, which continues to be grim. The recession announcement came as Federal Reserve Chairman Ben Bernanke said more interest rate cuts are possible, but admitted they would have limited economic benefit. The Fed holds a two-day policy meeting on rates beginning December 15. Joining us now to talk more about the outlook for the economy, Bruce Kasman, chief economist at JPMorgan. Hi, Bruce.
BRUCE KASMAN, CHIEF ECONOMIST, JPMORGAN: Hi, Susie.
GHARIB: So Bruce, are we closer to the end or the beginning of this recession?
KASMAN: Well, I think we're in the middle of it. And unfortunately this middle phase is looking quite a bit more intense than where we were at the start, at the beginning of the year. We are now not only seeing consumers retrench, but businesses are pulling back quite aggressively and it has turned into a very significant global event as just about the whole world has now joined us in an economic downturn. This is pretty significant in the degree to which we are now going down as we turn to the end of 2008.
GHARIB: Given that it is a global recession, what does that mean for the U.S. economy and its ultimate recovery?
KASMAN: Well, I think it's going to be very hard to pull out of this any time soon. I think we have got the combination of financial markets tightening, our demand going down and now our trading partners demand also getting hit quite hard. I think for the goods producing industries in the U.S. this is about as bad as we have seen at any time in the last four or five decades. And we're seeing businesses now shed jobs at a more aggressive and somewhat alarming pace. So the next few months here look pretty bad. And we are definitely going to need the Fed and other policy stimulus to help get us out of this.
GHARIB: Well, you said in the report today that you expect the Fed to lower interest rates to 0 percent by January. Now is that going to help the economy to get out of this difficult stage? Is it going to help the economy grow?
KASMAN: Well, the Fed is moving on two fronts right now. It is lowering policy rates and we think they will use the entire range to zero and they are also doing an awful lot to try to help the functioning of the markets by providing liquidity, helping to buy up assets. Right now I think the most important thing is the job they are doing in helping the functioning of markets. By lowering rates to zero, I think they are signaling their intent. And hopefully as financial markets show some improvement, the movement down we are seeing in the risk-free rates, the Fed funds rate and Treasury yields will start to move out and help corporate borrowing rates, household mortgage rates and the like.
GHARIB: Now as you know, there is considerable talk of a very large stimulus, fiscal stimulus package. Will that help the economy and to what extent might it help the economy?
KASMAN: Well, we still don't know the details. But certainly the kinds of numbers that are being thrown around a $500 to $700 billion package is quite large. However, I don't think we should expect to see much of that come in the next three, four months. So I think in terms of the degree to which we are moving down right now, fiscal policy is probably not going to be much of a help. Hopefully as we move out to the middle and later part of 2008 and '09, we will start to see some substantial benefits, help us generate a recovery. But it's not going to help us in what will be certainly a winter of discontent here.
GHARIB: All right, on Friday we get the latest employment report and all the forecasts are not very good about the numbers that we are going to be seeing. How long do you see job losses continuing?
KASMAN: We would say we're in the middle of this event. And we probably should expect to see job losses continue at least until late spring, early summer of 2009. So there is a long haul ahead. We're looking for job cuts on average to be in the range of 250 to 300,000 per month and we're looking for the unemployment rate to move up to something close to 8 percent at the time that we reach the peak.
GHARIB: All right so we have a ways to go. Bruce, thank you so much for coming on the program. We really appreciate it.
KASMAN: Thank you.
GHARIB: My guest tonight, Bruce Kasman, chief economist at JPMorgan.
