If this is a recession, it is the mildest one the U.S. economy has experienced in 55 years, and 2008 will more likely be a year of subpar growth, according to a new economic forecast from the University of Michigan.
“[A]cross the [last] seven recessions, we note that the smallest [percentage] job losses [were] in the 1990 and 2001 recessions, when payroll employment declined by three-quarters of one percent over [a] 7-month interval,” an annual midyear economic review and forecast from the university finds. “That is twice as severe as the current employment slump, which now registers a drop of 0.34 percent.”
University researchers Saul Hymans, Joan Crary, Stanley Sedo and Janet Wolfe project a 0.7 percent decline in GDP output for the current quarter ending in September, followed by a slight expansion in the next quarter for “essentially no growth in output for the second half of the year.”
But the economy has been wading through a “growth recession”—or subpar growth that fails to fend off rising unemployment—since late last year, and “has failed to produce the two quarters of declining output that have become the focus of the media’s recession watch,” the report states.
A classical recession is defined partly by two consecutive quarters of economic contraction. U.S. economic output declined slightly in the fourth quarter of 2007 and will likely do so again this quarter, but other quarters of mild growth have the University of Michigan team predicting 2008 annual GDP growth of 0.7 percent, compared with an average 2.5 percent growth during the past three years.
The report, released earlier this month by the university’s Research Seminar in Quantitative Economics, compares economic data from the past seven months with each of the last seven U.S. recessions since 1953.
Feeding the current weakness in the economy are oil prices and a collapse within the homebuilding and lending industries, the report states.
But other factors staving off a classical recession include strong foreign demand for U.S. goods on a weak dollar, temporary tax breaks for households and businesses, and intervention by the Federal Reserve and U.S. Treasury.
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