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WASHINGTON -- The United States economy officially sank into a recession in December 2007, according to the committee of economists at the National Bureau of Economic Research, the government agency responsible for dating business cycles, including recessions, The New York Times reported.
The announcement confirmed what many Americans have been feeling for some time, while private forecasters warned this downturn was likely to set a postwar record for length and is likely to be more painful than any other since 1980 and 1981, according to the report. Already, this recession is longer than the average for all recessions since World War II, the paper reported, and many analysts said they saw no signs yet that the economy was nearing a bottom.
"We will rewrite the record book on length for this recession," Allen Sinai, president of Decision Economics in Lexington, Mass., told the newspaper "It’s still arguable whether it will set a new record on depth. I hope not, but we don’t know."
The downturn is already one year old, longer than the average length of 10.5 months for recessions since World War II, but not yet reaching the current record for the longest recession over the last 50 years, which was 16 months for both the recessions of 1973-74 and 1980-81, the newspaper reported.
In its declaration of a recession, the National Bureau of Economic Research explained its choice of December 2007 as indicators such as payroll employment and personal income peaked in December 2007, though the nation’s gross domestic product expanded slightly in the first and second quarters of 2008, the report stated.
Ed McKelvey, an economist at Goldman Sachs, told the Times the bureau’s starting point for the recession was close to Goldman’s estimates.
Upon the announcement, the chairman of the Federal Reserve, Ben S. Bernanke, and the Treasury secretary, Henry M. Paulson Jr., vowed to use all their tools to help fix the economy.
When speaking to business leaders in Austin, Texas, Bernanke said it was "certainly feasible" to reduce the Federal government’s benchmark overnight lending rate below its current target of 1 percent, or could begin aggressively buying up longer-term Treasury securities, which would drive down longer-term interest rates, the report stated.
Meanwhile, Paulson, in a speech in Washington earlier this week, vowed to find new ways to use the $700 billion bailout fund Congress approved in October, according to the report. Congressional Democratic leaders are currently creating a new fiscal stimulus plan that could total more than $500 billion, and plan to have the measure ready as soon as Congress convenes with a strengthened Democratic majority in January, the Times reported.
"We are actively engaged in developing additional programs to strengthen our financial system so that lending flows to our economy," he said in his speech, quoted by the Times. "We are continuing to examine potential foreclosure mitigation ideas that may be an appropriate" use of the funds.
Consumer spending dove in the third quarter of this year, and evidence to date suggests there will be an even sharper pullback in the fourth quarter, though gas prices have continually dropped, according to the report.