Output Plunge Confirms U.S. Is in Recession

The nation’s economic output plunged sharply during the first three months of this year, the second quarter of decline in a row, the government said Friday. The report confirms the assessment--made official earlier this week--that the country is in a recession.

Preliminary estimates published by the Commerce Department showed that the “real” gross national product--or the total output of goods and services, adjusted for inflation--dropped at an annual rate of 2.8% between January and March, a steeper rate than had been expected.

The first-quarter plunge, which follows a decline during the previous quarter that reached a 1.6% annual rate, provided proof that the economic slump is truly a recession, which is informally defined as two successive quarters of declining output.

On Thursday, the National Bureau of Economic Research, which is generally recognized as the official arbiter of the business cycle, had formally declared the current slump to be a recession.

As had been expected, Friday’s report showed the decline was widespread across virtually every major sector of the economy. The only strength came from U.S. exports, which continued to boom.

Nevertheless, both government and private economists said that the latest signs suggested that the recession may be coming to an end.

Undersecretary of Commerce Michael Darby cited sharply lowered interest rates, lean business inventories and “tentative signs” of improvement in the housing and automobile industries as evidence that the economy may be on the verge of a rebound.

“The forerunners for resumed economic activity are coming into place,” Darby said.

Giulio Martini, an economist at Sanford C. Bernstein & Co. in New York, agreed. “What we are seeing is similar to what you expect in the last stages of a recession,” he said. “As a rule, the last quarter is the worst because consumption and production remain down.”

The first-quarter figures brought the overall gross national product to a projected annual mark of $4.123 trillion after adjustment for inflation--down $29.5 billion from the October-to-December quarter.

Consumer spending continued to fall, though not as sharply as in the previous quarter. The first-quarter decline was at an annual rate of 1.3%, compared to an annual rate of 3.4% in the final quarter of 1990. Consumer outlays account for about two-thirds of the GNP.

Housing construction, perhaps the economy’s most depressed sector, fell at a 26.5% rate in the first quarter, the fourth consecutive quarter of decline. Investment in new housing was almost 20% lower than during the same three months of last year, the Commerce Department said.

Business investment dropped at an annual rate of 14.4% during the quarter, following a minuscule increase in the final quarter of 1990.

Business inventories fell at a projected annual rate of $20.7 billion, following an even larger decline at an annual rate of $26.4 billion in the previous quarter.

To some economists, these two consecutive large inventory liquidations by manufacturers, wholesalers and retailers suggested that the recession may have hit bottom during the quarter.

Roger Brinner, an economist with DRI/McGraw Hill in Lexington, Mass., said businesses were “ultraconservative” earlier than usual during the current economic downturn, cutting both production and employment as soon as they saw consumption slowing.

As a result, Brinner said: “As soon as demand picks up, production should pick up also, and then--with a slight lag--employment” should follow.

Friday’s report also showed inflation rising to an annual rate of 5.1%, from a 4.7% pace in the previous quarter. But analysts said the figure may be overstated because it was skewed by the impact of fluctuating oil prices.

Despite the bearish figures Friday, the recession so far is still moderate. The last official recession, considered the most severe economic downturn of the post-World War II period, ended in November, 1982. Overall GNP fell by 3.2% during that 16-month period of stagnation.

Economists expect the current recession to be much milder, even though it has already cut 1.3 million jobs out of the economy since September. Most predict a recovery will start between June and September.

So far, the current recession has reduced the GNP by 1.1%, Commerce Department officials said. For all of 1990, the economy grew by only 1%, its worst performance since it fell by 2.5% in 1982.