Economic Recovery Sluggish, Uneven, New Figures Show

New measures released Wednesday show that the nation’s economic recovery--which seemed so dazzling in the immediate aftermath of last year’s terror attacks--is stumbling.

The gross domestic product, which measures the economy’s total output of goods and services, grew at only a 1.1% annual rate in the spring, according to new figures from the Commerce Department. That was less than half what had been expected and substantially less than the 5% pace of earlier this year.

The sharp slowdown in the April-through-June quarter raises the risk of the country slipping back into recession and contradicts the upbeat posture of the Bush administration, which has been portraying the economy as well along the road to recovery. American consumers, one of the few supports for the economy, appear to be pulling back, analysts say.

Meanwhile, last year’s recession, which top administration officials only last weekend were describing as barely perceptible, turns out to have been longer, deeper and more damaging than previously thought, newly revised Commerce Department figures reveal.

Instead of shrinking for a single quarter in 2001 as the government had thought, the revised figures show, the economy contracted for nine straight months.

Instead of paying $5.1 trillion in wages and salaries last year, the figures show, employers paid $4.95 trillion, or almost 3% less than previously thought. Instead of making $1.64 trillion in profits in 2000 and 2001, the figures show, corporate America made $1.5 trillion, or 8.5% less.

Combined with separate reports that show manufacturing in the nation’s heartland weakening and a Federal Reserve study that describes growth nationally as uneven, the new GDP figures paint a decidedly dark picture of the country’s immediate prospects, analysts say.

“Not only was last year’s recession more severe, but this year’s recovery is less robust than we thought,” said Mark Zandi, chief economist of Economy.com, a West Chester, Pa., forecasting firm. “Basically, the economy has come to a standstill since spring.”

The stock market, which has been struggling to catch its balance after months of losses, initially sank on Wednesday’s economic news but then rallied. Both the Dow Jones industrial average and the Standard & Poor’s 500 index ended the day higher, while the tech-heavy Nasdaq composite index lost more ground.

Market watchers said the unusual reaction was evidence that people on Wall Street and in Washington had their minds elsewhere, especially on talk of a U.S. invasion of Iraq. One of the big winners Wednesday was Exxon Mobil Corp., whose shares jumped 3% in value; many believe that the energy giant would profit if a new Middle East war drove up oil prices.

President Bush sought to put the best face on the new numbers, saying they show the economy is growing again, even if not strongly.

“I am positive about our economy,” the president told reporters after a morning Cabinet meeting. “I feel very optimistic about it because I look at the facts, and the facts are that inflation is low, interest rates low, productivity is high.”

But many analysts say the new GDP figures cut to the very heart of the optimists’ assessment of the economy. The numbers show that the economy’s performance was nowhere near as spectacular as it was made out to be. And they suggest that the principal player behind what little growth there has been recently, the free-spending American consumer, is beginning to cut back.

“There’s no locomotive that’s pulling this economy forward,” said Edward F. Leamer, director of the UCLA Anderson Forecast in Los Angeles. “We’re going to have sluggish growth for a long time. It’s not going to feel good, and it’s not going to be any good for jobs.”

Leamer and others said that at 1.1%, the real, inflation-adjusted growth rate for the latest quarter was too weak to reduce the nation’s unemployment rate, which has risen to 5.9% from a four- decade low of 3.9% in October 2000.

“Unemployment is going up almost no matter what,” economist Zandi predicted.

Before Wednesday, most analysts thought the economy had grown at a 2.3% pace in the spring quarter and at a powerful 6.1% rate from January through March. Besides announcing weaker growth in the latest quarter, Commerce officials also trimmed their initial estimate of the earlier quarter’s growth to 5%.

Analysts said the most recent quarter’s figures were particularly disturbing because they showed that much of the recent weakness was traceable to consumers.

Although consumer spending, which accounts for nearly two-thirds of the nation’s economic activity, continued to grow, it did so at a considerably slower pace than in recent quarters and without a burst of expenditures on big-ticket items such as houses and cars.

Many analysts say a slowdown on the consumer’s part is precisely what the economy does not need.

“What these numbers suggest is that what you’ve got is an exhausted consumer,” Leamer said. “That’s not good for growth.”

Analysts said the one positive note in the most recent quarterly numbers was a pickup in business investment in equipment and software. But the improvement was modest at best: Investment, which was racing along at a nearly 20% clip in the late 1990s, climbed at a mere 2.9% rate in the latest quarter, the Commerce Department reported.

Perhaps as striking as the recent quarterly numbers were Commerce’s revision of its annual growth figures for the last years of the 1990s boom and the first years of the new decade.

Although the department regularly revises its GDP figures as new information becomes available, officials acknowledged Wednesday that the latest revisions were particularly large. They represented, in effect, the economic equivalent of the recent rash of corporate profit restatements.

The revisions show that the economy slowed abruptly in mid-2000, earlier than previously thought, and began contracting during the first quarter of 2001, just as Bush took office.

Commerce officials concluded that instead of growing 1.2% in 2001, the economy shrank for the first three quarters and then grew at a 2.7% pace in the quarter after the Sept. 11 attacks. For the full year, growth was a negligible 0.3%.

Analysts said the changes mean that such important economic measures as productivity growth were nowhere near as strong as previously thought.

That means the economy will have to pull out of its current troubles without many of the advantages policymakers such as Federal Reserve Chairman Alan Greenspan thought it had.