Report Forecasts Considerable U.S. Economic Slowing

The U.S. economy will slow considerably next year as stock market declines lead consumers to cut back on spending and businesses to rein in new investment, according to a report due from UCLA’s Anderson School today. U.S. gross domestic product will probably shrink at a 0.2% annual rate in both the second and third quarters of next year before rebounding in the last three months of the year and into 2002, according to the quarterly forecast. “The current low rate of unemployment, the narrowing of the interest rate spread and the disappointing corporate profits have been pointing to the end of the expansion already in the year 2000,” said forecast director Edward Leamer in a statement. Unemployment will jump by nearly a percentage point to average 4.9% next year. The UCLA forecast isn’t definitive; it has about a 60% chance of being correct, Leamer said. The UCLA forecast has understated growth and overestimated unemployment the last two years. The UCLA report calculates inflation based on the average rise in the consumer price index for a given year. Many economists use a different method, calculating the change in prices from December of one year to December of the next.