If It's a Recession, How Deep?

With employers slashing jobs for the third straight month, there is a consensus building that the economy is in a recession. But the question remains as to just how bad a recession it may turn out to be.

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This past weekend there was another troubling sign that the U.S. economy has fallen into a recession. On Friday the government reported the third straight month of job losses and a jump in the unemployment rate to 5.1 percent.

As NPR's John Ydstie reports, the question now is not if we're in a recession but how long it's likely to last.

JOHN YDSTIE: There's still no official declaration that the U.S. economy is in recession, but on this past Wednesday, Ben Bernanke came as close to declaring one as a Federal Reserve chairman can.

Mr. BEN BERNANKE (Chairman, Federal Reserve): A recession is possible but a recession is a technical term defined by the National Bureau of Economic Research depending on data, which will be available quite a while from now. Our estimates are that we're slightly growing at the moment but we think that there's a chance that the first half as a whole, there might be a slight contraction.

YDSTIE: Whether or not it turns, the U.S. economy is already shrinking, Bernanke said. The Fed believes its interest rate cuts and the $170 billion congressional stimulus package will revive economic growth in the second half of the year. Bernanke's comments came before the gloomy employment report. It showed a net loss of another 80,000 jobs in March, following similar job losses in January and February.

Economist Stuart Hoffman drew this conclusion:

Mr. STUART HOFFMAN (Chief Economist, PNC Financial Services Group): Pretty hard to look at this disappointing jobs report and not come to the conclusion that the U.S. economy has slipped into recession.

YDSTIE: But Hoffman, chief economist for PNC Financial Services Group, says it's not likely to last very long.

Mr. HOFFMAN: Our forecast is it will be short and shallow, will last the first half of this year and the U.S. economy will resume some growth in jobs in the second half of the year.

YDSTIE: Hoffman cautions that growth is unlikely to be as robust as normal recoveries because of lingering problems in the housing market and high personal debt levels.

Dean Baker of the Center for Economic and Policy Research is more pessimistic. First of all, he says, people need to remember that the last recession in 2001 is often described as short and shallow. But for people in the job market it was quite long.

Mr. DEAN BAKER (Economist, Center for Economic and Policy Research): We continued to lose jobs for a year and a half after the recession was officially over. So for most people the recession ended, you know, in late 2003 when we started to create jobs again, even though it officially ended in November of 2001. So my guess, by that measure, is that we're likely to have a probably long and deep recession.

YDSTIE: And, Baker says, this time around it could be even worse.

Mr. BAKER: It's a really big deal. You can't have a collapse of an $8 trillion housing bubble and not see, you know, pain just about everywhere as a result.

YDSTIE: That's because consumer spending, which accounts for more than two-thirds of the economy, has been driven for years now by rising home values.

Mr. BAKER: In a lot of cases people were just spending directly against the equity in their home. They were taking out home loans and using that to, you know, buy a car, take a vacation or just, you know, meet their bills. And now that you have so many people that literally have no equity that they can borrow against they have no choice but to curtail their consumption, and that's hitting everything. That's hitting the retail sector, that's hitting, you know, travel, restaurants. Up and down the line it's hitting everything.

YDSTIE: Well, not everything. Baker points out that the lower dollar is helping U.S. export industries. Among them is agriculture, which is also flourishing because of high demand and low food stocks in the world as a whole.

John Ydstie, NPR News, Washington.

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