Belief Growing That Recession May Be Over


The recession of 1990-91, brought on 11 months ago by a credit crunch and a real estate slump and deepened by the Persian Gulf War, is slowly and quietly coming to an end--if it hasn't already.

Amid fresh signs of a turn in the nation's economic data, a consensus is building among leading Washington policy-makers and private economists around the nation that the economy has bottomed out and that the first signs of a modest recovery are coming into sight.

At the White House, Administration officials are on the verge of officially declaring the recession over. In July, the Administration plans to release a formal economic forecast that is almost certain to claim, based on preliminary figures, that the economy began to grow again during the second quarter.

The new White House forecast, which is still being developed and has not been publicly released, is expected to show a slight upturn--of about 0.3%--in the nation's output of goods and services, or gross national product, during the second quarter. That would follow two consecutive declines in output in the fourth quarter of 1990 and the first quarter of this year.

The forecast is also expected to predict that the economy will grow at a rate of between 2% and 3% in the second half of the year. Most economists define a recession as being at least two consecutive quarterly declines in the GNP.

"If we continue to see the signs that we've been getting over the past few days, then I think it will be clear that the national economy has bottomed out and that we are seeing the early signs of a recovery," Michael J. Boskin, chairman of the President's Council of Economic Advisers, said in an interview Thursday.

But optimism about the economy is now spreading far beyond the normally upbeat White House. A survey released this week by the Blue Chip Economic Consensus newsletter found that most of the nation's top economic forecasters believe the recession either has ended or will end by next month at the latest.

That view has become widespread due largely to a sharp improvement in a broad range of economic indicators over the last few days. The government reported Thursday that retail sales jumped a surprisingly strong 1% in May, with demand for a wide range of goods picking up during the month. It was the largest gain since February, with improvements coming in a wide range of products from automobiles to clothing.

Also on Thursday, the Labor Department reported that the number of jobless seeking unemployment benefits fell sharply in late May, a key indication that the pace of layoffs is slowing.

That report came a week after the government announced that, during May, the economy began to create jobs for the first time in almost a year--despite the fact that the unemployment rate climbed to 6.9% during the month from 6.6% in April.

Coupled with other recent signs that industrial production and factory orders are slowly reviving and that the nation's housing and construction industries are finally stabilizing, the employment reports have convinced most economists that the economy began to turn sometime in May. The nation's eighth recession since World War II probably drew to a close during the month.

"May was certainly not a recessionary month," said Donald Ratajczak, an economic forecaster at Georgia State University. "If we had monthly data (on the gross national product), I'm sure May would look positive."

If the recession has ended, the 1990-91 slump will probably go down in history as one of the mildest in the post-war era. Economists believe that in hindsight it will be viewed as having been on the modest scale of the downturns of 1948 and 1960 but much less severe than the fierce recessions of 1973-74 or 1981-82.

Last week, Federal Reserve Board Chairman Alan Greenspan became the first prominent policy-maker outside the White House to proclaim that he believes the economy has hit bottom and is now heading up once more. Over the last few days, meanwhile, a growing list of senior Fed officials, including two members of the Fed's board of governors, have publicly endorsed Greenspan's statements, suggesting a broad consensus at the central bank.

In a speech Thursday, for example, Robert Parry, president of the Federal Reserve Bank of San Francisco, declared that "economic statistics available over the past month" indicate that "the recession ended this quarter."

"I think it is fair to say that represents the consensus view at the Fed," one senior official said.

Such broad agreement almost certainly means that the Fed does not believe it needs to cut interest rates further to spur the economy.

Strong exports, declining interest rates and a relatively low backlog of unsold manufactured goods have all combined to stem the recession. Now, economists expect the nation's export-driven industrial regions, especially the Midwest, to show the strongest signs of recovery this summer, with the East Coast and West Coast remaining sluggish for several months. Housing and construction markets, for example, have begun to show signs of life on a national basis but remain weak in Southern California.

But many economists still caution that the recovery in the second half of 1991 will be much weaker than the upturns that have followed previous recessions. Forecasters are generally predicting economic growth of around 3% for the next six to 12 months, compared to the 5% growth rate that has been typical in the first year of previous recoveries.

And economists believe that for many Americans it will be difficult to discern the difference between recession and growth. Unemployment, for example, is expected to continue to rise for several months; it is likely to rise above 7% for much of late 1991.

"I think the economy is shifting from recession to recovery, but we are really just coming off the bottom," said Lawrence A. Kudlow, chief economist at Bear, Stearns & Co. in New York. "I don't see any new business or capital formation coming, and we still have uncertainties with the banking and savings and loan industries.

"So I just don't see a real takeoff."

SALES, INFLATION INCREASE: Fresh statistics show that retail sales rebounded and inflation at the wholesale level jumped. D1

Copyright © 2019, Los Angeles Times
EDITION: California | U.S. & World