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01 December 2008

NBER Says It's Official, We're In a Recession

The National Bureau of Economic Research (NBER) is a leading group of private economists that are charged with determining the start and end dates for U.S. economic downturns. Because of the need to look at financial indicators, it takes a long time to declare a recession and figure out its start date.

The NBER stated that the deterioration of the labor market was the main reason for declaring a recession and choosing the start date as December of 2007. During the first 10 months of 2008 1.2 million jobs were lost and another 325,000 are expected to be lost in November when the government announces these figures on Friday.

The NBER also looks at real personal income, industrial production as well as wholesale and retail sales. All those measures peaked between November of 2007 and June of 2008.

In addition, the NBER considers GNP. Most people erroneously assume that GNP must decline 2 quarters in a row for there to be a recession. This has not taken place yet in this recession.

It did not give any reasons for the cause of the recession, but many believe that the housing downturn led to the broader economic collapse.

The falling housing prices that peaked earlier this decade, led to falling housing starts and home purchases. This also caused a rise in mortgage foreclosures, which in turn led to billions of dollars in loses to the nations largest banks and a tightening in credit.

This is the longest recession since the Great Depression in the 1930's and is not expected to bottom until mid 2009. The two most recent recessions in '91 and '01 lasted 8 months.

The government has pumped trillions of dollars into the economy to try and pump it up and get things rolling again. So far, the economy is slow to respond, but most economists don't expect this recession to turn into a depression even with all indicators in a tailspin.

The biggest government worry now is not, 'are we in a recession', but how do we fix it? With rising costs, rising unemployment, record foreclosures and depleted savings it is very important that the government do more to help American families make ends meet.

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