Dec. 1, 2008 -- If anyone needed the confirmation, it's official.
The economy is in recession.
And even if we knew it, even if the Bush administration and investors tried to avoid saying it, receiving official word of a year-long recession pushed the markets down more than 7 percent today, practically erasing all of last week's gains.
"The R word is something that we haven't mentioned and don't want to mention. But finally it's come to light," said Jonathan Corpina, senior managing partner with Meridian Equity Partners. "Now, we're actually saying we are in a recession. I think the psychological effects of that being stated is definitely having an effect on this market."
The Dow Jones lost 679.95 points to close at 8,149.05, down 7.7 percent. In one day, the Dow gave up nearly everything it gained last week when the blue chip index closed up 782.62 points. The S&P 500 closed at 816.21 losing 80.38 points, dropping 8.93 percent. The Nasdaq lost 137.50 points or 8.95 percent to close at 1,398.07.
Despite early indications that retail sales were better than expected over the Thanksgiving weekend, investors were in a sour mood from the start of trading.
"In reality, we know that going forward into this holiday season that we're not going to get the retail numbers that we were looking for," said Corpina.
Adding fuel to negative sentiment on Wall Street, the government announced that construction of new homes and businesses fell 1.2 percent in October, more than expected. And a measure of the manufacturing sector also fell more than expected to levels not seen since 1982.
Nigel Gault, chief U.S. economist with IHS Global Insight, wrote that the manufacturing report "is consistent with other economic indicators that show the economy contracting at an exceptionally rapid pace."
Economy in Recession
Then came official word that the economy is now in its 13th month of recession. The National Bureau of Economic Research, the official arbiters of the beginning and ending of U.S. recession, announced that the downturn started in December of last year.
"Because a recession is a broad contraction of the economy, not confined to one sector, the committee emphasizes economy-wide measures of economic activity," said the release statement. "The committee believes that domestic production and employment are the primary conceptual measures of economic activity."
White House deputy press secretary Tony Fratto reacted to the news saying, "The most important things we can do for the economy right now are to return the financial and credit markets to normal, and to continue to make progress in housing, and that's where we'll continue to focus."
Confirmation of the recession pushed oil prices back below $50 to close at $49.28 a barrel, down $5.15, more than 9 percent. As oil prices continue their steep decline, gasoline prices also continue to fall. The Energy Information Administration reported Monday afternoon that the average price of a gallon of gasoline dropped to $1.81, off 8 cents from last week. Gasoline is now 56 percent lower than its peak only five months ago.
In the midst of the economic news, the two administration officials leading the charge to shore up the nation's economy spoke.
Speaking to the Greater Austin Chamber of Commerce, Federal Reserve Chairman Ben Bernanke said, "Despite the efforts of the Federal Reserve and other policymakers, the U.S. economy remains under considerable stress."
Bernanke used the speech to review the three major areas where the nation's central bank has taken action: lowering interest rates, providing banks and other institutions greater access to funds held by the Federal Reserve and taking steps to shore up financial institutions teetering on the edge of collapse.
Efforts for Recovery
Benanke said that, in general, the government should directly intervene in the markets only in "exceptional circumstances." Now, he said, is one of those times.
"The failure of a major financial institution at a time when financial markets are already quite fragile poses too great a threat to financial and economic stability to be ignored. In such cases, intervention is necessary to protect the public interest."
Later in the day, his economic partner, Treasury Secretary Henry Paulson, also spoke.
"There is no single action the federal government can take to end the financial market turmoil and the economic downturn," he said. "In these extraordinary times, we must instead focus on developing the most effective combination of our tools to further stabilize our financial system and speed the process of recovery."