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Consumer spending plunged in the third quarter of this year, and the evidence so far suggests they may pull back even more in the fourth quarter. Consumers account for about 71 percent of American economic activity, and their most recent retreat is occurring even though gasoline prices have dropped by almost half in the last month and left people with more money in their pockets.
In officially declaring that the current recession began in December 2007, the National Bureau of Economic Research paid little heed to the fact that the nation’s gross domestic product actually expanded slightly in the first and second quarters of 2008.
In explaining its decision, the bureau noted that a wide variety of other indicators, including payroll employment and personal income, peaked in December 2007. Payroll employment has dropped every month since then. Personal income declined and then zigzagged until June, and has declined steadily since then.
The gross domestic product often fluctuates widely from quarter to quarter, but it also received a somewhat artificial boost from the tax rebate checks that the government mailed out last spring and early summer as a temporary stimulus.
Ed McKelvey, an economist at Goldman Sachs, said the bureau’s starting point of last December for the recession was close to Goldman’s own estimates.
The announcement means that the downturn is already one year old. That is longer than the average length of 10.5 months for recessions since World War II. The current record for the longest recession over the last half-century is 16 months, which was reached in both the downturns of 1973-74 and 1980-81.
Mr. Sinai of Decision Economics said it was hard to imagine that this downturn would have hit bottom within the next four months, which would make it all but certain to set a new record.
Mr. Paulson, who teamed up with the Fed last week to begin a new $200 billion program to buy up consumer debt and small-business loans, said he had committed all but about $20 billion of the first $350 billion Congress authorized for the bailout fund.
“We are actively engaged in developing additional programs to strengthen our financial system so that lending flows to our economy,” Mr. Paulson said in his speech. “We are continuing to examine potential foreclosure mitigation ideas that may be an appropriate” use of the funds.
Democratic lawmakers have sharply criticized Mr. Paulson for refusing to use any of the money yet for reducing foreclosures. Sheila C. Bair, chairwoman of the , warned last month that as many as 4.5 million people were likely to lose their homes through foreclosure. Ms. Bair proposed a plan that she said could prevent about one-third of those foreclosures.
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