NEW YORK – The United States has slipped into recession, the head of the San Francisco branch of the Federal Reserve, the nation's central bank, said Tuesday.
"The recent flow of economic data suggests that the economy was weaker than expected in the third quarter, probably showing essentially no growth at all," said Janet Yellen Tuesday in an address in Palo Alto, California.
"Growth in the fourth quarter appears to be weaker yet, with an outright contraction quite likely," she said. "Indeed, the U.S. economy appears to be in a recession."
Yellen spoke just hours after official data showed the budget deficit tripled in size in the 2007-08 accounting year to $455 billion, or 3.2 percent of gross domestic product.
Her remarks also followed a dramatic period that saw the U.S. government, for the first time since the Great Depression, partially nationalize major banks in its latest move to restore confidence to badly-shaken financial markets.
Economic downturns are a double blow for government budgets because they reduce tax revenue for governments and increase the need for social security spending in the form of unemployment benefits.
Recession is broadly defined in the United States as more than two quarters of decline in real GDP.
"By now, virtually every major sector of the economy has been hit by the financial shock," Yellen told the Silicon Valley chapter of Financial Executives International.
"Employment has now declined for nine months in a row, and personal income, in inflation-adjusted terms, is virtually unchanged since April. Household wealth is substantially lower as house prices have continued to slide and the stock market has declined sharply."
She added: "Business spending, too, is feeling the crunch, as firms face weak final demand for their products, a higher cost of capital, and restricted credit."
"We've even begun to see some signs of a slowdown for the previously very strong IT industry," she told her audience, which included many executives from the information technology sector.
Turning to inflation, she said: "Commodity prices, including the price of oil, have plunged."
"I expect this development, along with a further increase in slack in labor and product markets, to push inflation down to, and possibly even below, rates that I consider consistent with price stability."
Yellen concluded by saying that turmoil in global financial markets represented "a serious and direct threat to the well-being of all citizens of the global economy".
But she doubted that the U.S. economy, in the years ahead, faced "a period of economic misery" rivaling the Great Depression, saying: "The American economy is more resilient now than then."