Reuters piece -- U.S. Seen Shaking Recession in 2002 (from SI start page).
U.S. Seen Shaking Recession in 2002
Dec 15 8:20am ET
By Glenn Somerville
WASHINGTON (Reuters) - The high-flying U.S. economy came back to earth with a
thud in 2001, but economists expect it to struggle back upward in the year ahead as it
shakes off the first recession in a decade.
Opinion is virtually unanimous that the world's largest economy will regain its footing in
2002 and resume its upswing. For most economists it's just a question of when and
how strong the recovery will be.
Bush administration officials say a recession "trough" or bottom likely was reached in
the current fourth quarter but private-sector analysts are more cautious.
But for now the economy is dealing with a miserable toll of unemployment and
displacement at the end of a record expansion that has run since the 1990-91
recession. More than one million jobs have vanished since this recession began in
March -- many of them from the economic impact of the Sept. 11 attacks -- driving
unemployment to a six-year high of 5.7 percent in November. The jobless rate is
forecast to keep climbing.
"Recovery some time in 2002 is highly likely," said economist Allen Sinai of Decision
Economics Inc. in Boston, but he predicted a rising number of Americans will find
themselves in the ranks of the jobless for some months to come.
In each of nine previous recessions since the end of World War Two, a total two million
jobs were lost, suggesting the current job drain will extend for another five to six
months.
TIME NEEDED FOR ADJUSTMENT
That means that 2002 may be "a transition year" at best, Sinai said. "It looks like 2003
will be the really good year," he added.
The character of a U.S. recovery is unclear not only because of events at home but
also because the global economy is in one of its sharpest downturns since the 1980s.
The United States will not get any air beneath its wings from trade with
recession-wracked Japan or teetering Europe.
"There is a complex interplay of positive and negative forces in play that will determine
when (growth begins) and that suggest a soft recovery -- a slow liftoff much like the
recovery and the aftermath of the 1990-91 downturn," Sinai said, a view widely shared
by those in the forecasting community.
The expansion that began in March 1991 and ended exactly 10 years later started
slowly, and even included a contraction in the first quarter of 1993. But then it took
wing and generated millions of jobs on the back of an investment-fueled boom sparked
by the information technology revolution.
Many of the conditions seen as vital for recovery are in place in the United States.
Interest rates are at 40-year lows after one of the Federal Reserve's most aggressive
rate-cutting campaigns ever, in which it brought its key federal funds rate down to 1-3/4
percent.
The U.S. central bank lowered rates 11 times by an exceptionally large 4-3/4
percentage points, leaving real or inflation-adjusted rates near or below zero,
depending upon the measure of price rises used.
World energy costs are lower than they were a year ago, mortgage refinancings
spurred by falling interest rates have put money in consumers' pockets and the Bush
administration successfully pushed through a record $1.3-trillion tax-cut program early
in 2001.
Both monetary and fiscal policy tools were brought to bear relatively early after top
Bush administration officials, notably Vice-President Dick Cheney, began warning at
the start of the year that there was a risk of recession.
POLICYMAKERS TAKE A BOW
"Policymakers deserve significant credit for what they did to prepare the economy
early for getting through this downturn," said economist Mark Zandi of Economy.com
in West Chester, Pa.
The element no policymaker could foresee was the severe blow to confidence from
Sept. 11 attacks that smashed the World Trade Center in New York into oblivion and
damaged the Pentagon, stopping commerce for days.
Analysts said the success or failure of efforts by the Bush administration and
Congress to agree on a new stimulus package to counter the attacks' slowing effect
and help end recession remains one of the great unknowns for the economy's
prospects.
Negotiations in Congress continue to lurch along, with most expectations for a
package of measures worth somewhere around $100 billion including additional tax
relief and more money to help those who lose their jobs.
A MODEST RECOVERY
"The recovery is going to be a modest one even with (fresh) stimulus," Zandi said. "But
if we don't get any stimulus, it threatens to be a very disappointing one that will be
characterized by very low growth and rising unemployment throughout 2002."
Unemployment will continue to hamper the recovery. Zandi estimates that the United
States is headed for a 6.5 percent unemployment rate next year even with new
stimulus measures in place, 7 percent if none were enacted into law.
Pent-up demand for costly items like new cars and bigger homes that normally drives
a recovery in the early stages is largely absent this time because consumer have
binged on goods as cheap credit made purchases and financing less costly.
Still, economist Tim O'Neill of Toronto-based Bank of Montreal said there has been
enough drawdown of overstocked inventories to force restocking that should bring at
least tepid growth in the first quarter of 2002.
"The initial boost will come from bare cupboards having to be replenished," O'Neill
said, adding that momentum will build to a rate of growth in gross domestic product
exceeding 4 percent a year in the final six months of 2002.
He added: "My expectation is that the strength of any recovery would be accelerated
in time and extent by a meaningful stimulus package."
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