Recession of 2008
The Recession of 2008 is a major worldwide economic downturn that was caused by the Financial Crisis of 2008. It began in the financial sector as major banks in the U.S. and Europe were in serious trouble, and spread to the automobile industry, where General Motors and Chrysler verged on bankruptcy in December. They were rescued by an emergency bailout ordered by President George W. Bush over the objections of Congressional Republicans.
Oil, metal and grain (rice, wheat, corn) prices, after hitting record levels in the summer of 2008, have plunged. Oil went from $145 a barrel to $42.
Retail sales in the U.S. and worldwide are in a major slump, with the slowest Christmas shopping season in decades. American manufacturing contracted in November 2008 at the steepest rate in 26 years. The U.S. lost some 2.6 million jobs in 2008, the worst record since the end of World War II, Factory indexes in China, Britain, Europe, and Russia all fell to record lows.
In January 2009 the downturn worsened, as major companies and small firms announced round after round of layoffs and postponement of expansion plans. The financial sector worsened sharply in January, indicating the the huge financial bailouts of 2008 were not enough. The steep slide continued as unsold goods piled up. The GDP (gross domestic product) shrank at a 3.8% annual rate in the fourth quarter (last three months) of 2008, the sharpest contraction in 26 years.
Meanwhile, at the urging of the Obama Administration, Congress passed a $789 billion stimulus package, combining new spending and tax cuts, in the hopes of turning the economy around by mid-2009. Republicans were nearly unanimous against the proposal, as their smaller package was voted down. Canada, although not as hard hit as the U.S., is preparing its own stimulus package.
- see also Economic stimulus package
Economists from all political viewpoints predict the slide in GDP is likely to continue at an alarming pace well into summer 2009 as consumers continue to curtail spending and businesses reduce their capital investments and cut their payrolls.
The longest economic slumps since 1945 were the 16-month downturns that ended in March 1975 and November 1982. The Great Depression lasted 43 months, from August 1929 to March 1933.
"This may be referred to as the Great Recession," because of its length, said Norbert Ore, chairman of the Institute for Supply Management’s factory survey. "It looked like we were headed for a shallow recession earlier in the year because of higher energy prices. With the meltdown in the financial sector, it has become something more serious."
After reaching a low of 4.1% in October, 2006, the U.S. unemployment rate has been trending upward. Analysts from the National Bureau of Economic research say that the current nation-wide recession began a full year ago; the economy peaked in December, 2007. This recession is expected to continue into 2010. Unemployment reached 6.5% in November 2008 and could reach 9% or even higher in 2009. Unemployment has already reached 8% and higher in some industrial areas of the U.S. and the West Coast.
The unemployment rate nationally in November 2008 was 6.5%, shown in chart below in dark blue. Michigan had the highest unemployment at over 9%. In the West, California, Oregon, and Nevada all had relatively high unemployment levels, all around 8%.
The crisis is worse in many other countries, which means they are dragging down the US economy and cannot be expected to be the engine to restore prosperity. Japan’s economy, the world’s second largest after the U.S., is deteriorating rapidly because of shrinking exports and weak domestic spending. Japan's GDP shrank at an annual rate of 12.7% in the fourth quarter of 2008, and the downward plunge shows no sign of reversal. Japan's exports to the U.S. and other areas are down sharply, causing massive layoffs at companies like Nissan, Toyota, Panasonic and Sony. Capital spending on tools and factories has fallen as companies halted production lines and cut investment. Consumer spending has stalled as Japanese households reduced spending amid the large-scale layoffs. The government has promised a huge bailout package on the order of 50 trillion yen ($545 billion), but has been unable to get it passed in parliament.
The economies in Europe and Russia are headed down, as are most third world countries. Economic growth in China continues at a much lower pace than usual, throwing tens of millions out of work there. The oil producing nations have seen their revenues plunge with the decline of oil prices.
- Jack Healy And Louis Uchitelle, "Steep Slide in U.S. Economy as Unsold Goods Pile Up," New York Times Jan. 30, 2009
- see Steve Matthews and Timothy R. Homan, "U.S. May Be in for ‘Great Recession,’" Bloomberg News Dec 2, 2008
- Hiroku Tabuschi, "Japan’s Economy Plunges at Fastest Pace Since ’74," New York Times Feb. 15, 2009