Bloomberg Anywhere Remote Login Bloomberg Terminal Demo Request


Connecting decision makers to a dynamic network of information, people and ideas, Bloomberg quickly and accurately delivers business and financial information, news and insight around the world.


Financial Products

Enterprise Products


Customer Support

  • Americas

    +1 212 318 2000

  • Europe, Middle East, & Africa

    +44 20 7330 7500

  • Asia Pacific

    +65 6212 1000


Industry Products

Media Services

Follow Us

Bloomberg Customers

How Bad Will The Recession Get?

Posted by: Michael Mandel on September 05

This morning’s employment report has settled the question of whether the U.S. is in recession. With the unemployment rate jumping to 6.1%, the answer is unequivocally yes.

Now the question is: How bad will the recession get? The answer: Pretty bad. So far the jobs cuts have mainly hit construction and manufacturing. Over the past year, those two sectors have lost roughly 850,000 jobs.

However, the job disaster has not yet truly hit the rest of the economy. In particular, over the past year real estate is down only 39,000 jobs, commercial banking is down only 5,000 jobs, and securities and commodities is actually up 14,000. These industries have to make a lot of big job cuts to get to where they need to be.

What’s more, I expect a lot more job cuts in retail and wholesale trade. Consumers still have not yet fully adjusted their spending downward to the new realities. When they do, the bottom is going to fall out of retailing.

Finally, whatever impetus the U.S. economy was getting from exports is going to ebb away, as Japan and Europe are showing negative growth in the second quarter. That won’t help manufacturing.

My best guess is that the U.S. economy is going to experience a sharp downdraft in the rest of 2008 (think severe turbulence in an airplane), led by falling consumer spending and by falling employment. .The only cushion is healthcare and education (to some degree), But even those jobs will slow down as government budgets get tight.

The drop in oil prices will help a bit, but high energy costs have already done their sucking a lot of buying power out of the economy. To put it a different way, if you’ve paid $100 extra for gasoline, that $100 doesn’t magically reappear when gas prices go back down. It’s gone.

We are having to pay back for the years of consumer excess. And it won’t be pretty.

TrackBack URL for this entry:

Reader Comments


September 5, 2008 10:38 AM


I could not agree more with your post.
I try to be optimistic (really...believe me...) but I cannot really see even the faintest glow that would indicate the end of the tunnel at the moment.


September 5, 2008 12:02 PM

You must be one of those economists that is always "surprised" by the economic news. 1st quarter GDP +.09, 2nd quarter 3.3%. RDP is lower of course. Recession is negative growth, not less growth. Business cycles suck when they're on the downside. It affects my business hard, but I'll stay away from the ledge!


September 5, 2008 12:22 PM

The article is actually predicting a recession. Where do these writers come from? Do they actually know anything? Makes me wonder.

The US is not in a recession. While there are certain sectors (such as housing) that are in recession, the US itself is not. A recession is defeined as when GDP is negative for two or more successive quarters.

Yes, higher energy costs are killing us. Apparently, people are finally realizing that. Maybe we can get something done about it. Drill for oil, natural gas, gather wind, etc. I'm all in for it.

Brandon W

September 5, 2008 01:30 PM

Oh, you ain't seen nothin' yet. Unemployment will continue to rise. What jobs are left for most Americans won't pay anything; we can't run an economy selling hamburgers and life insurance to one another. Spending will continue to contract for years.

Forget that oil has dropped to $110/bbl - it was under $20/bbl in 2002 and the trend is certainly upward, even if it got a little ahead of itself. In 10 years 2/3 of Americans won't be able to afford to drive 20 miles to work as fuel prices skyrocket; so much for suburbia.

Inadequate public transit will turn outer 'burbs into this:

Infrastructure will continue to crumble because we didn't take in adequate tax revenue, mis-spent what we did, and now the potential tax revenue is falling because wages and real estate assets are crumbling. As for "private" infrastructure... Australia and South Korea have substantially faster, more widespread Internet access than the U.S. and we fall further behind every day. Our wireless phone network is a world joke. China now has more Internet users than we do.

And all this assumes no one does anything to damage us. Like a terrorist who's sick of our meddling in their countries blowing up a major U.S. building. Or the Russians... Remember how Reagan ran up defense spending until the costs bankrupted the government into collapse? Hey, guess what... the Russians are back and they're the world's largest producer of oil and natural gas. Think they wouldn't love to pull the rug out from under us and return the favor?

No, we've been far more than just excessive consumers. We've been greedy, ignorant, short-sighted, and arrogant. We've wasted 50 years of wealth and opportunity on building an unsustainable economy based on an energy resource that's getting exponentially more expensive to get a hold of. And we're going to pay for it.


September 5, 2008 01:41 PM

The National Bureau of Economic Research does not define a recession in terms of 2 consecutive quarters of decline in real GDP. Rather, a recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, andwholesale-retail sales. Almost 3 of those indicators look pretty bad now and their forecasts.


September 5, 2008 02:51 PM

Guys, just watch this today's video interview on CNN to Prof. Nouriel know one of these "peripheral conspiracy theorists"....

Fasten your seat's going to be rough...


September 5, 2008 04:02 PM

Yes, we are in a recession. The big question is, "How will we get out of this recession?". China and foreign expansion saved the USA in the last recession but is that going to happen this time? The world is going to need a miracle to get out of this one. We might see a world depression. It doesn't make sense that China and India's GDP is growing at a slower pace but their stock markets are down. They will not be able to save the USA this time.


September 5, 2008 04:53 PM

I ran a deficit for 7 years, and made some off-balance sheet tricks.... in the end, no one would lend me more $$$$. I went broke when my house, cottage and cars all lost value. I now live in small apartment and use the bus. There is life after! .... when the world figures out the Federal debt, our dollar will crash. and solve a lot of the debt problem.

It's me again!

September 5, 2008 05:53 PM

That was one heck of a sucker-ralley.


September 5, 2008 09:02 PM

OMG the sky is falling, the sky is falling!! Every time we have a downturn in the economy you hear so much fretting about how 'this time' it's the end of the greatness of the USA. Yes, we will have a recession (have been in one for quite some time already in Michigan!) but it isn't going to knock us to our knees folks. There's cycles that are economy goes thru - nothing can stop it. We've lived excessively - shame on us. But the sky isn't going to fall. The world isn't going to end. That probably bums some of you doomsayers out, doesn't it?


September 6, 2008 02:49 AM

The guys before me who still think there is no recession are the same guys who will be voting for Mccain because they believe his retoric. The point of the article is not wheather we are in a technical recession (2 qtrs of negative growth)but that we are on our way to one. Once the public perception is there is a recession, it will occur because people will change thier spending habits. Even if the government enacts another incentive (rebate program), it will just delay the enevitable.


September 6, 2008 06:36 PM

For those who thinks that we are not in recession, I got to tell you'all haven't seen nothing yet. When you loose your home, job and family then you will realize how bad it is because USA try to play a big shot and gave aide which is American tax money to Israel and Egypt and wasting billions in war in Iraq and Afghanistan and we have senior citizen who can't afford to buy medicines, so prepare for the worse and hope for the best and vote for Obama for a real change!


September 7, 2008 09:09 PM

right...its just years of consumer excess...right...c'mon that ignores so much and you know it! I can think of de-regulation playing a large role...wreckless care of the strategic thinking or planning in terms of a changing world...or am i completely wrong?


September 7, 2008 11:11 PM

With what has already happened and what will most likely occur in our domestic waters most certainly will have consequences in foreign fiat currencies notwithstanding their respective global markets and in turn, our own opportunities to invest while the tide is low.

Mike Mandel

September 8, 2008 06:29 PM


I just call 'em as I see 'em. Most of the time I'm long-term optimistic, though.

Brandon W

September 9, 2008 08:43 AM

I agree with Scott that the de-regulation has been a huge problem. Being for boundaries and regulations in a market does not make one a socialist. Having rules does not truly hinder the ability to trade freely, it simply makes the playing field fair. Every game has rules; let's use baseball as an example. The rules are very stringent that a batter must go to 1st, then 2nd, then, 3rd, and then Home. Without these rules being fairly applied to both teams, the game would be ridiculously slanted. Unfortunately, what we've created is worse than a game without rules. We've created a game where it's OK for the Yankees to skip 1st and 2nd, and go straight to 3rd, because they have the most money while the other teams don't have enough cash to warrant that advantage. Every game has it's rules. It's what makes for fair competition.


September 10, 2008 06:48 AM

i think normal non educated folks,artists will be in recession.Rich folks,bankers,military,defence contractors,senators,presidents(past,present,future),federal employees will never be in recession.They already own half of world.
so if you dont posses considerable skills,you are going to be poor.


September 10, 2008 12:54 PM

G, I think that only old money will be spared. The author says education is not going to be touched, but with the credit crisis, banks won't lend for education. The federal government is cutting back on educational aid per student, and so fewer people will go to college. The only way to keep people in school will be to lower tuition.

The Skeptic

September 10, 2008 06:53 PM

Checkout the U6 unemployment rate which also counts discouraged workers, people working part-time who want full-time work etc. It is now at 10.7 pct.

1 in 9 workers, and their families, are now hurting. This does not bode well for the economy. It doesn't mean anything if the GDP rises if most people don't benefit from it. The saying "A rising tide lifts all boats" seems to be no longer true. Don't forget that behind every lost job are very real human beings. And skills don't matter. Research and development, IT work, accounting, HR, Engineering (mechanical, electrical, chemical, aeronautical and Chemical) are all going overseas as well as manufacturing. The only thing that can save jobs is a very weak dollar.

The next people needing a bailout will be the car companies and Lehman Brothers. Between that, Iraq, Freddie Mac and Fannie Mae the government is going to have to print a huge amount of money to see us through.

What happened to AMerican business leaders? Recent events have convinced me that I wouldn't trust them to run a frozen banana stand.


September 10, 2008 07:06 PM

Recession began in December 2007, so we are already 9 months in.

The unemployment rate will peak at 6.5%, or higher than in the last recession.

The S&P500 will dip as low as 1160 (currently 1230).

So about 80% of the descent is complete, with another 20% to go. The bottom? October for the stock market, next year for the unemployment rate. Recession ends in January (13-month recession). Housing, however, does not rise in price until 2011 (nor should it - people have to learn their lesson).


September 11, 2008 04:02 AM

It's important to remember an economy has numerous sectors, each of which can be relatively independent of the others, not all sectors are in recession in the US.

What is important is to concentrate government support on those sectors that are struggling the most but also to make sure the growing sectors are not held back by the spilling over of bureaucracy, which is often a product of state intervention.

Brandon W

September 11, 2008 01:49 PM

"A rising tide lifts all boats"... but some boats are lifted more than others.


October 28, 2008 04:54 PM

This comment is for everyone who posted comments regarding Obama and his "plan" that will fix our economic problems.

Obama's plan to increase taxes on the wealthy and raise minimum wage to $9.50 sounds good to all us "middle and lower classers" but the reality is that he wants to tax the people who own our companies. These people are not going to take a hit on their personal wealth by paying higher taxes and higher wages to workers. They will balance this hit by cutting workers, wages when possible and raising the prices of their goods.

We will see higher job losses and more companies going under.

Second, his plan to give income tax breaks to the middle and lower classes wont do us a bit of good when we do not have an income!!!!!

I would like to pay less taxes, but i more would like to keep my job!

Third, when minimum wage goes up to 7.50 or 9.50 an hour is my $13.00 an hour income goig to go up too? No. Not only will I become "low income" but the price I pay for goods will go up drastically because the businesses are having to shell out so much more for employees.

Are we in a recession? Yes! Is is going to get worse? Yes!

Does Obama hold the answers? Absolutely not! Think about what you are hearing people. Just because something sounds good on the surface doesnt mean its best for you country. Thats howe we got into this mess.

James Bond

November 25, 2008 10:52 AM

I beleive that it is impossible to predict the severity of this recession.
When JP Morgan called in the bankers and requested the "real" ledgers, they were easy to read and the securities then were easy to understand.
Todays securities are convulated like a bag of Pretzels, they are filled with Mortgage default swaps, other forms of derivatives and other complex transaction which in my opinion is impossible to attribute a $ value , So when I hear these "Experts" statment of a $ figure for a bailout, I Chuckle. They have NO IDEA!.
The only Positivity is that Obama might not be a finencier, but his eloquent, honnest explanations of facts which will come into light hopefully will give us a sense of trust and hope to the governemnt institution.
Look at what happen in 1929, the real crash occured between 1930 and 31 where the Dow lost over 80% of its value.
Lets whath!

james bond

November 25, 2008 01:17 PM

Sorry for the spelling, Moneypenny who does the spell checks was layed off!


December 26, 2008 05:02 AM

Lol @ james bond.

We haven't seen the end, but it's indeed more difficult to fight the fear of a recession, instead of the recession itself.


January 27, 2009 12:11 PM

Sorry, This article does not address the root cause of the recession but just speaks to some of the realities we are feeling.

The Question How Bad Will the Recession Be -

What has caused the recesion - Americans who have used credit to spur the economy and must now pay the bill. A housing downturn which has killed a strong source of consumer credit (secondary mortagaes)

Will Up and Coming Economies like Brazil, Russia, China be able to genearte demand for products to put Americans back to work while we pay off our debt?

What impact will current Washington actions have to help the Economy?

These are the questions we need answers to


July 2, 2009 06:01 PM

Look, the world has been in these times before and it will get better. And the market will return stronger that might just take a few years. The recovery should start at the end of this year!!!

Carson McDonald

September 15, 2009 12:05 AM

I`ve seen things working for the government and not working for the government that I`ve never seen or read of in any democracies` history.right here in the U.S.A.
I know of lawyers who were once rich,multimillionaires who are now blowing gays for bill money,ones that cant get welfare somehow.
Ive done studies on the societic ills that have been infecting America in the past 20-30 years and I must say.
America is well on its way to democracies final stage,bondage....
We are living in our last "good-days".

We should just throw in the towel and pray for obama,cuz the excess we dominated the rest of the world with in the 90`s & whatnot was too-much and must take us out of #1 spot.
chinas turn now.... maybe? nah,who knows.
enjoy what freedoms you have now cuz martial law is a real law isnt it?


January 21, 2010 09:45 PM

Interesting… I might try some of this on my blog, too. It’s quite interesting how you sometimes stop being innovative and just go for an accepted solution without actually trying to improve it… you make a couple of good points.

small business

Thank you for your interest. This blog is no longer active.



Michael Mandel, BW's award-winning chief economist, provides his unique perspective on the hot economic issues of the day. From globalization to the future of work to the ups and downs of the financial markets, Mandel-named 2006 economic journalist of the year by the World Leadership Forum-offers cutting edge analysis and commentary.

BW Mall - Sponsored Links

Buy a link now!