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Buffett: We're essentially in recession
Associated Press

Warren Buffet: "I would say, by any commonsense definition, we are in a recession."

 

Associated Press

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Published: 3/3/2008 7:58 AM

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OMAHA, Neb. -- Billionaire Warren Buffett said Monday that the U.S. economy is essentially in a recession even if it hasn't met the technical definition of one yet.

Buffett said in an interview with cable network CNBC the reports he gets from the retail businesses his holding company owns show a significant slowdown in purchases.

The chairman and CEO of Omaha-based Berkshire Hathaway Inc. said millions of people have also lost equity in their homes because home prices have dropped.

The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product.

"I would say, by any commonsense definition, we are in a recession," Buffett said on CNBC.

But Buffett said it's not clear how far the recession will go because that is difficult to predict.

The technical definition of a recession most economists use is two consecutive quarters of negative growth in the nation's gross domestic product.

On Thursday, the Commerce Department reported that the gross domestic product increased at a low 0.6 percent pace in the quarter that ended Dec. 31.

In the July-September quarter, the economy grew at a brisk rate, 4.9 percent.

Gross domestic product measures the value of all goods and services produced in the United States and is the best barometer of the country's economic health.

A survey released last week by the National Association for Business Economics showed that 45 percent of economists are predicting a recession in 2008.

Buffett's appearance on television came on the heels of his annual letter to shareholders, which he released Friday along with Berkshire's 2007 financial report.

In the letter, Buffett predicted that the insurance industry will see lower underwriting profit margins in 2008 because premium prices are down, and the industry's luck will certainly change.

"It's a certainty that insurance-industry profit margins, including ours, will fall significantly in 2008," he said. "Prices are down, and exposures inexorably rise. Even if the U.S. has its third consecutive catastrophe-light year, industry profit margins will probably shrink by 4 percentage points or so.

"If the winds roar or the earth trembles, results could be far worse."

Buffett said Berkshire's insurance group, which includes GEICO, reinsurance giant General Re and several other firms, generated $2.2 billion net income from insurance underwriting in 2007. That's down from the previous year when it posted a $2.5 billion underwriting profit.

Berkshire owns more than 60 subsidiaries including insurance, clothing, furniture, natural gas, corporate jet and candy companies. Berkshire also has major investments in such companies as Coca-Cola Co. and Wells Fargo & Co.

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