GDP Shows Recovery May Be Underway
Americans are spending their way out of the recession, the government said Thursday as it released figures showing the economy expanded at a 1.4% rate during the fourth quarter of 2001.
The revised growth estimate, up from last month’s initial reading of 0.2%, was higher than most economists had predicted, and provided more evidence that a recovery already may be underway.
The economy’s ability to bounce back from Sept. 11 and resume its growth after only one quarter of contraction is attributable largely to a surge in consumer spending, particularly on durable goods such as autos and appliances.
“Where’s the recession?” quipped Joseph LaVorgna, senior economist with Deutsche Banc Alex. Brown in New York. “It’s pretty remarkable. We really had what appears now to be a very shallow recession.”
The Commerce Department said gross domestic product, the broadest measure of the nation’s economic output, reached a record $10.3 trillion during the final three months of 2001.
The 1.4% gain followed a 1.3% decline in the third quarter, the first GDP contraction in nearly a decade.
The fourth-quarter figures will feed a continuing debate over the length and depth of the downturn. The popular definition of a recession is two consecutive quarters of economic contraction, and it appears the latest slowdown was confined to one.
But the National Bureau of Economic Research, the official scorekeeper of U.S. business cycles, does not use GDP figures to define recessions. Instead, it looks at four monthly indicators of economic performance: employment, real income, industrial production and wholesale-retail trade.
According to the research group, the recent recession began in March 2001, when U.S. employment began declining from a peak of 132.7million. The official end point will be whenever the group says it is, and the group might not make that decision for months. (In most cases, the downturns it designates as recessions coincide with two consecutive quarters of GDP shrinkage. But not always: The recession of 1960-61 was another exception.)
A series of economic shocks, some dating back to early 2000, contributed to last year’s slump: higher energy prices, dot-com disillusionment, stock market losses, business investment cutbacks, inventory liquidation, manufacturing layoffs, tech industry failures and, finally, the Sept. 11 terrorist attacks.
The downside of a mild recession is the probability of a subdued recovery, as Federal Reserve Chairman Alan Greenspan cautioned Congress this week.
The Fed expects economic growth to increase to an annual rate of no more than 3% by year’s end, far below the average 7% surge during the first year of a typical recovery.
“If you look at just GDP data, we never went down that drastically,” said Brian S. Wesbury, chief economist with Griffin, Kubik, Stephens & Thompson, a Chicago investment bank. “If you don’t drop a lot, then you can’t bounce a lot either.”
The fourth-quarter rally reflects one of the defining characteristics of the recent downturn: Consumer spending, which normally collapses in the early stages of a recession, has remained the economy’s principal pillar of support during the last year.
While businesses reacted to the gathering storm clouds by curtailing investment, cutting costs and selling off inventory, consumers kept right on spending, even in the aftermath of Sept. 11. Tax rebates, interest-free financing and rock-bottom mortgage rates helped keep their wallets open and charge cards in circulation.
Overall consumer spending rose 6% during the final three months of 2001, the Commerce Department reported, providing the biggest single contribution to fourth-quarter growth. Had consumer spending been flat, the economy would have instead shrunk by 2.6%.
Spending on durable goods, big-ticket manufactured items that are highly sensitive to changes in the economy, soared 39.2%. It was the biggest quarterly gain in 15 years and reflected the stimulative effect of falling interest rates on sales of homes, autos, furniture and appliances.
“It’s a logical consequence of the very low interest rates that the Fed has engineered,” said Nariman Behravesh, chief economist with DRI-WEFA, a Lexington, Mass., forecasting firm.
“As people buy homes, they’re buying curtains, they’re buying washers, they’re buying refrigerators, they’re buying furniture. All this stuff has helped to keep the consumer buoyant throughout this downturn.”
The economy also got a boost from government outlays, which rose 10.1% in the fourth quarter. Spending by households and government more than offset the recessionary effects of corporate cutbacks. Total business investment fell 13.1%, the Commerce Department said, and the sell-off of inventories subtracted 2.2% from fourth-quarter growth.
In another positive sign, first-time claims for unemployment benefits continued their downward trend last month, the Labor Department reported. Although the number of new claims increased by 17,000 last week, the figure for the previous week was revised down by 22,000, causing the four-week moving average to decline to 373,000.
