The National Bureau of Economic Research confirmed the suspicions of many Americans by declaring on December 1 of last year that the U.S. economy entered a recession in December 2007. The recession’s duration has already exceeded the postwar average (10 months), and it could surpass the two longest (both 16 months) since World War II. If so, it would be the longest recession since the Great Depression, which ended in March 1933 after 43 months. George W. Bush left office as the first president since Richard M. Nixon to preside over two recessions during his tenure in the White House.
Republicans badly mishandled the economy in 2008. President Bush, a self-styled “compassionate conservative,” refused to use the r-word before the NBER’s declaration, despite yearlong declines in employment and industrial production. As late as September, GOP presidential nominee John McCain proclaimed his belief that “the fundamentals of the economy are strong.” Republicans marketed themselves as fatalists, and it cost them dearly in bellwether states such as Ohio, which they will be hard-pressed to retake. Too many Republicans continue to defend manufacturing job losses in the name of invisible-hand economics, rather than condemn the flawed government tax, regulatory, trade, and monetary policies that destroyed 4.7 million jobs since the sector last peaked in March 1998. This represents a loss of more than one in four manufacturing jobs during Bill Clinton’s and George W. Bush’s administrations. More than 80 percent—four million—of these manufacturing jobs were lost under the latter.
Until the credit crisis of fall 2008, most economists were also hesitant to recognize that a recession was under way. They were slavishly preoccupied with the stock market and ignored warning signs in manufacturing such as decreases in industrial production and capacity utilization. After the recessions of 1990-91 and 2001, manufacturing employment failed to expand at rates similar to earlier postwar expansions. But too many economists are fixated on the market instead of coincident indicators (employment, industrial production) that reach peaks or troughs with cyclical turning points in the business cycle. Economists who missed the expansion’s peak were among the first to declare the recession’s trough after the NBER’s announcement. They should be treated with skepticism. Instead, media references to “27” or “28 years ago,” and “since 1982” are more significant. The bad news illustrates that this recession is competing with the 16-month recession that lasted from July 1981 to November 1982, the worst since the Depression. Examples include Associated Press dispatches warning that “the economy’s decline in 4Q-2008 could be the worst quarterly drop since 1982” (December 24) and noting that initial weekly requests for jobless benefits rose to the highest level since November 1982 (December 25). Another example is the Dow Jones report of January 2 that the Institute for Supply Management’s manufacturing index dropped to a “28-year low” in December. Expect more losses if President Barack Obama’s green industrial policy does not immediately create jobs.
How and when will we know if this recession is the worst since the Depression? If the First Friday monthly employment report from the Department of Labor and the Federal Reserve’s mid-month industrial-production reading continue to contract into May, along with two other indicators (income and trade), we will be forced to add one more chapter to this sad tale of the neglect of domestic manufacturing.