Panel declares official recession

It’s official.

After months of depressing economic indicators, mind-boggling financial bailouts, mounting job losses and collapsing retirement accounts, an elite team of economists formally pronounced what most of us already knew: We’re in a recession.

In fact, we’ve been in a recession for a year, according to the National Bureau of Economic Research (NBER), which reached its consensus during a conference call Friday and shared it with the rest of us Monday.

The revelation, while less than shocking, still had the power to move the markets. The Dow Jones Industrial Average plummeted nearly 680 points Monday, taking back nearly half of the gains it made during last week’s record climb.

The nation’s 73 months of economic expansion officially ended in December 2007, according to the Business Cycle Dating Committee of the NBER, a private, nonprofit research organization based in Cambridge, Mass. But many analysts expect this downturn to last much longer than average postwar recessions and to be much deeper than the two most recent economic contractions.

The business-cycle committee, established in 1978, generally takes six to 18 months after a recession has begun to make its official declaration. “The committee waits long enough so that the existence of a recession is not at all in doubt. It waits until it can assign an accurate date,” the committee said Monday.

A year after the recession began, the U.S. economy remains mired in the most serious financial and credit crises since the Great Depression. Banks and other financial institutions have been battered by losses from defaulting mortgages after the housing market collapsed. While the housing bubble began to deflate in mid-2006, prices have been falling at an accelerating rate.

The overdose of bad economic news continued Monday, including a horrific report on manufacturing in November, leading the Dow to a 7.7 percent loss on the day. Yet again, most of the stock market’s losses occurred late in the trading session.

To battle the economic downturn, the Federal Reserve has already reduced its target short-term interest rate to 1 percent and engaged in extraordinary operations to inject massive amounts of liquidity into the nation’s financial system.

“At this point, the scope for using conventional interest-rate policies to support the economy is obviously limited,” Federal Reserve Chairman Ben S. Bernanke said in a speech Monday.

The incoming Obama administration and Congress are considering a fiscal stimulus package that could total $700 billion, potentially sending the budget deficit well above $1 trillion.

“I have confidence that we are pursuing the right strategy to stabilize the financial system and support the flow of credit into our economy,” Treasury Secretary Henry M. Paulson Jr. said in a speech Monday. “This consistent effort to strengthen our financial institutions so they can support our economy is critical to our progress through the current economic downturn.”

The current contraction has already lasted 12 months, two months longer than the average of the 10 previous postwar recessions.

The 2001 recession lasted eight months, ending in November 2001.

The 1990-91 recession also lasted eight months. Both were considered brief and mild by historical standards, leading many economists to say that the business cycle had been smoothed. Now, economists are projecting that the current recession will be much longer and deeper than the previous two.

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