David Smith and Dominic Rushe
AMERICA’s economy is definitely in recession, economists say, amid growing fears that the credit crunch is entering its most dangerous phase.
Figures on Friday showing a second successive monthly fall in US employment sealed the question of whether America had entered its first recession since the 2001 downturn.
The US lost 63,000 jobs in February, said the Department of Labor, amid the fastest fall in private-sector jobs in five years. The decline, which followed a 22,000 drop in January, the first fall in more than four years, surprised many economists who had been expecting a slight rise. Manufacturers and construction companies led the decline as they absorbed the costs of the housing slump.
“The debate is over,” said Paul Ashworth, senior US economist at Capital Economics. “The 63,000 decline in nonfarm pay-rolls in February is near-conclus-ive proof that the economy is now in recession.”
In a note to investors, Joshua Shapiro, economist at MFR, described the jobs numbers as “a terrible report” that signals “no support at all now for consumer spending growth”.
Both the White House and the US Treasury continue to argue that the American economy is not in recession. Opinion continues to mount up against them, however.
The National Bureau of Economic Research, the body that is regarded as the official arbiter of whether America has entered a recession, will not issue its formal verdict for some months.
But Martin Feldstein, who has headed the bureau for three decades, told The Sunday Times: “On the basis of the available evidence, I would say we are in recession. But numbers get revised. And the delayed effects of the monetary and tax stimulus could kick in and pull the economy back onto a growth path.”
On Friday, Larry Summers, the former US Treasury secretary, said the economy is “currently in recession” and warned that it was likely to be severe in its length and depth.
“I believe we are facing the most serious combination of macroeconomic and financial stresses that the US has faced in a generation – and possibly, much longer than that,” he said, addressing an annual economics summit organised by Stanford University in California.