Economy Plunges 2.1%, Recession Confirmed

The U.S. economy, beset by the turmoil in the Persian Gulf, took a nose dive in the fourth quarter, declining at an annual rate of 2.1%. Economists said the drop confirmed that a recession is under way, but the Bush Administration insisted that the downturn should be brief.

The Commerce Department said that the gross national product--the country’s total output of goods and services--dropped at the sharpest rate since a 3.2% decline in the third quarter of 1982, during the depths of the last recession.

The 2.1% decline reflected widespread weakness throughout the economy, led by a $21-billion drop in consumer spending as nervous Americans cut back on purchases of everything from big-ticket items like autos to everyday products like food and clothing.

“It’s clear we’re in a significant economic downturn,” White House spokesman Marlin Fitzwater told reporters today when asked about the GNP report.

The GNP has not declined in a full quarter since a 1.8% drop in the second quarter of 1986.

Although that drop did not trigger a recession, economists both in and out of government believe that the weakness this time is signaling an end to the nearly eight years of economic expansion.

For the year, the GNP rose at an annual rate of 0.9%, just about one-third the increase of 2.5% in 1989. It was the poorest annual showing since GNP fell by 2.5% in 1982.

As late as mid-July, the Administration was still forecasting that the GNP would rise by 2% this year.

Both the Bush Administration and the Congressional Budget Office are forecasting that the fourth-quarter weakness will be followed by a negative GNP quarter in the January-March period as well.

The final arbiter of when recessions start, the National Bureau of Economic Research, has said that it will probably pinpoint a month during the third quarter of 1990 as the actual starting date of the recession even though overall GNP growth registered a slightly positive 1.4% rate during that period.

The Bush Administration blamed the downturn on Saddam Hussein’s invasion of Kuwait.