US recession may have begun in last quarter of '07
The US economy may have tipped into a recession in the last three months of 2007 as consumer spending slowed more than previously estimated and the housing slump worsened, revised government figures showed.
By Timothy R Homan, Bloomberg |
WASHINGTON : The US economy may have tipped into a recession in the last three months of 2007 as consumer spending slowed more than previously estimated and the housing slump worsened, revised government figures showed.
The world���s largest economy contracted at a 0.2% annual pace in the fourth quarter of last year compared with a previously reported 0.6% gain, the Commerce Department said on Thursday in Washington. Growth for the period from 2005 through 2007 was also trimmed.
The revisions now reinforce measures such as employment and production that already signalled the economy was shrinking. The National Bureau of Economic Research, the Cambridge, Massachusetts-based arbiter of economic cycles, defines a recession as a ���significant��� decrease in activity over a sustained period of time. The declines would be visible in GDP, payrolls, production, sales and incomes.
���We���re in a recession,��� Allen Sinai, chief economist at Decision Economics in New York, said in a Bloomberg Television interview. ���It���s going to widen, it���s going to deepen.���
The government also said incomes grew less than previously thought, raising the risk that consumer spending will again stumble after getting a temporary boost from the tax rebates last quarter.
The prior time the economy shrank was in the third quarter of 2001 during the last recession, when it contracted at a 1.4% pace. Growth from January through March was revised down to a 0.9% pace from 1%. Initial jobless claims increased by 44,000 to 4,48,000 in the week ended July 26, from a revised 4,04,000 the prior week, the Labor Department said.
The revisions of growth are part of the government���s annual adjustments to gross domestic product based on additional information from surveys and internal revenue service data.
For 2005, growth was cut to 2.9% from 3.1%, and the rate of expansion for 2006 was reduced to 2.8% from 2.9%. The economy grew 2% last year, down from a previously reported 2.2%. Nine of the 13 quarters under review were revised down, three increased and one was unchanged.
The largest downward revision was for the last three months of 2007, as the previously reported 2.3% gain in consumer spending was reduced by more than half, to 1%. Americans cut back on the use of electricity and gas as fuel bills
soared.
The popular definition of a recession - two consecutive quarters during which the economy shrinks - isn���t always fulfilled. ���While everyone focuses on GDP, keep in mind that it is not the only barometer of economic activity,��� David Rosenberg, chief North American economist at Merrill Lynch in New York, said in a July 28 note to clients. Growth ���is subject to huge historical revisions.���
American workers also earned less in the last two years than the government previously estimated. Employee compensation was reduced by $69 bn, or 0.9%, in 2007. Figures for wages and for benefits were reduced about equally.
The world���s largest economy contracted at a 0.2% annual pace in the fourth quarter of last year compared with a previously reported 0.6% gain, the Commerce Department said on Thursday in Washington. Growth for the period from 2005 through 2007 was also trimmed.
The revisions now reinforce measures such as employment and production that already signalled the economy was shrinking. The National Bureau of Economic Research, the Cambridge, Massachusetts-based arbiter of economic cycles, defines a recession as a ���significant��� decrease in activity over a sustained period of time. The declines would be visible in GDP, payrolls, production, sales and incomes.
���We���re in a recession,��� Allen Sinai, chief economist at Decision Economics in New York, said in a Bloomberg Television interview. ���It���s going to widen, it���s going to deepen.���
The government also said incomes grew less than previously thought, raising the risk that consumer spending will again stumble after getting a temporary boost from the tax rebates last quarter.
The prior time the economy shrank was in the third quarter of 2001 during the last recession, when it contracted at a 1.4% pace. Growth from January through March was revised down to a 0.9% pace from 1%. Initial jobless claims increased by 44,000 to 4,48,000 in the week ended July 26, from a revised 4,04,000 the prior week, the Labor Department said.
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The revisions of growth are part of the government���s annual adjustments to gross domestic product based on additional information from surveys and internal revenue service data.
For 2005, growth was cut to 2.9% from 3.1%, and the rate of expansion for 2006 was reduced to 2.8% from 2.9%. The economy grew 2% last year, down from a previously reported 2.2%. Nine of the 13 quarters under review were revised down, three increased and one was unchanged.
The largest downward revision was for the last three months of 2007, as the previously reported 2.3% gain in consumer spending was reduced by more than half, to 1%. Americans cut back on the use of electricity and gas as fuel bills
soared.
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The largest upward swing, from 3.8% to 4.8%, was for the second quarter of last year. The figures also showed the housing slide that began in 2006 was worse than previously thought. Residential investment fell 32% in the two years ended in December 2007, compared with a prior estimate of 29%. The popular definition of a recession - two consecutive quarters during which the economy shrinks - isn���t always fulfilled. ���While everyone focuses on GDP, keep in mind that it is not the only barometer of economic activity,��� David Rosenberg, chief North American economist at Merrill Lynch in New York, said in a July 28 note to clients. Growth ���is subject to huge historical revisions.���
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The four other factors that the NBER takes into account, Rosenberg said, peaked between October 2007 and February 2008. The NBER usually declares a recession has started between six to 18 months after it���s begun, according to its website. American workers also earned less in the last two years than the government previously estimated. Employee compensation was reduced by $69 bn, or 0.9%, in 2007. Figures for wages and for benefits were reduced about equally.
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