RECESSION STARTED ONE YEAR AGO

December 1, 2008 – 7:42 pm

By Richard Russel — The evidence of a downturn has been widespread for months, slower production, stagnant wages and hundreds of thousands of lost jobs. But the nonpartisan National Bureau of Economic Research, charged with making the call for the history books, waited until now to weigh in.

In a statement released Monday, the members of group’s Business Cycle Dating Committee - made up of seven well-known economists, most from the academic sector said that the economy entered a recession in December of 2007.

A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in production, employment, real income, and other indicators, the members said in a statement. "A recession begins when the economy reaches a peak of activity and ends when the economy reaches its trough."

The committee noted that the contraction in the labor market began in the first month of 2008 and said that the declines in most major indicators, like personal income, manufacturing activity, real sales, and industrial production, "met the standard for a recession."

The announcement came as the stock market fell sharply, its first decline in five sessions. The Dow Jones industrial average was off more than 440 points by early afternoon. The Standard & Poor’s 500 stock index fell nearly 6 percent. There was a time when such sharp losses would strike fear in the minds of market watchers, but analysts said that after last week’s gains - the biggest five-day rally in decades - perhaps a 300-point decline was to be expected.

"You had the biggest weekly gain in 30, 35 years," said Anthony Conroy, head equity trader at BNY ConvergEx Group. "Some profit-taking is warranted." Still, Monday’s losses were striking. Stocks were dragged down by double-digit declines in shares of financial firms. Citigroup, a source of concern on Wall Street of late, dropped 11 percent: American Express and Bank of America were off about 10 percent.

Investors may also be playing defense ahead of Friday’s report on the job market, one of the most important monthly indicators of the health of the economy. Analysts expect that employers shed more than 300,000 jobs in November, underscoring the problems facing American workers and businesses.

This is the first official recession since 2001, when the economy suffered after the bursting of the technology bubble. The period of expansion lasted 73 months, from November 2001 to December 2007.

Monday brought its own share of poor economic news. The manufacturing industry suffered its worst month since 1982, according to a closely watched index published by the private Institution for Supply Management.

The index fell to 36.2 in November from 38.9 in October, on a scale where readings below 50 indicate contraction.

That was the worst monthly reading since 1982, and a sign that the worldwide credit crisis was taking a serious toll on American businesses.

New orders fell sharply, although orders held steady from October.

"However you look at the numbers, the message is the same: manufacturing is in free fall with output collapsing," Ian Shepherdson of High Frequency Economics wrote in a note to clients. "We see no prospect for near-term improvement."

A separate report from the Commerce Department showed that spending on construction projects fell 1.2 percent in October, after staying unchanged in September. Private construction dropped 2 percent with a sharp drop in the residential sector, offering few signs of relief from the housing slump.

The declines on Wall Street came after stocks in Europe and most of Asia moved lower, as investors refocused attention on a gloomy economic outlook.