The current U.S. recession, with no end in sight, threatens to be the longest since 1933, and that helps explain why investors are having so much trouble gauging the stock market.
Models developed in the more normal times of the past few decades, based on things like corporate-profit forecasts, the interest-rate environment or the length of the average recession, have failed in the current, exceptional economy. Many have signaled that stocks were cheap and it was time to buy, but stocks kept falling and got cheaper.
Since the Great Depression, only two recessions have run longer than this one, the first ending in 1975 and the other in 1982. Each lasted 16 months.
The Fed projects GDP to decline in 2009 "as a whole", and unemployment to "rise significantly into 2010". The Fed also expects disinflationary pressures to continue into 2010.
The information reviewed at the December meeting pointed to a significant contraction in economic activity in the fourth quarter. Conditions in the labor market deteriorated considerably in recent months as most major industry groups shed jobs.
Private payrolls continued to fall at a faster pace than earlier in the year, and the unemployment rate rose to 6.7 percent…The housing market weakened again as construction activity, new home sales, and home prices declined further.
In the business sector, investment in equipment and software appeared to continue to contract. Industrial production fell markedly in November after sizable declines in the preceding two months. The recent contraction in industrial output was broadly based…
Real personal consumption expenditures (PCE) fell for the fifth straight month in October, with the slowdown evident in nearly all broad spending categories.
Sales of light motor vehicles, which slumped in October, fell further in November, but the available information on retail sales suggested a small increase in real outlays for other consumer goods…
Real construction activity continued to decline in November. Single-family housing starts and permit issuance fell further…
In the business sector, investment in equipment and software appeared to be contracting at a faster rate in the fourth quarter than during the third quarter…
As financial market conditions worsened over the intermeeting period, investors seemed to become more concerned about the likelihood of a deep and prolonged recession…
From Calculated Risk: Fed's Yellen: Recession Long and Deeper than "Garden Variety"
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