U.S. economic downturn longer, deeper than thought
7/31/2002 8:38:59 AM
By Glenn Somerville
WASHINGTON, July 31 (Reuters) - The U.S. economy's skid into recession last year began earlier, lasted longer and cut more deeply into the full year's performance than previously thought, the Commerce Department said on Wednesday.
Revised data show the economy contracted for three straight quarters from the beginning of 2001 -- more than enough to meet a rule-of-thumb definition that two quarters or more of shrinking national output qualifies as a recession.
The news should squelch a long-running debate about whether last year's slump was long enough to constitute a genuine recession.
In fact, the new data show last year's economic downturn had the same nine-month duration as the 1990-91 recession that began in June 1990. That one lasted until March 1991 when a record expansion began -- the 10-year period of growth that ended last year.
Previous government data had shown gross domestic product, or GDP, shrank only during last year's third quarter, prompting questions about whether there really was a recession or not.
The revised data show GDP shrank at annual rates of 0.6 percent in the first three months of last year, 1.6 percent in the second quarter and 0.3 percent in the third quarter.
That was a sharp change from previously reported expansion at a 1.3 percent rate in the first quarter and 0.3 percent in the second quarter, though the third-quarter contraction was less severe than the 1.3 percent rate previously estimated.
On a positive note, Commerce said GDP -- total economic output from within the nation's borders -- rebounded in the fourth quarter to grow at a revised 2.7 percent annual rate that outpaced its earlier estimate of 1.7 percent expansion.
RECESSION QUIBBLES
Bush administration officials, seeking to avoid a recession on their watch, have regularly questioned the validity of a call last November by the Cambridge, Mass.-based National Bureau of Economic Research, which dates business cycles, that a recession began last March by saying it was too short to be termed a real recession.
"It seems quite clear now that our economy maybe never suffered a recession," Treasury Secretary Paul O'Neill said in March, a view backed by some private-sector economists who expressed equal skepticism.
"We almost have to look back and call this a recession-ette, rather than a recession," Economist Diane Swonk at Banc One Corp., said earlier this year.
NBER argued that it used indicators other than GDP, including payrolls numbers, to call business cycle turns.
The view looks less cloudy now.
COULD HAVE BEEN WORSE
The government revises its GDP estimates each July to reflect more complete information. It said last year's downturn remained mild by comparison with past episodes, and was led by a falloff in consumer spending and business investment.
The full set of revisions covered the period from the beginning of 1999 through the first three months of this year.
Commerce left its previous estimate of 1999 GDP growth unchanged at 4.1 percent but showed a steep tailing off of momentum in the following two years.
It scaled back estimated GDP growth for the full year 2000 to 3.8 percent from 4.1 percent and said the economy barely edged ahead 0.3 percent in 2001 as a whole instead of the 1.2 percent it previously published.
Consumers and businesses were pinched by a weakening economy where it hurt -- in the wallet and on the bottom line.
Commerce revised down its estimate of wages and salaries by a whopping $147.6 billion for 2001 and by $900 million for 2000. It revised down its favored measure of corporate profits -- profits from current production -- by $35.5 billion for 2001 and by $88.3 billion for 2000.
O'Neill and other Bush administration officials maintain the economy currently is sound and on track for an annual growth rate around 3 to 3.5 percent by year-end, a robust recovery from last year's anemic performance if achieved.
Most private economists agree a recovery is in process, though a rebound troubled by investor worries over accounting scandals that have helped sow turmoil in U.S. and global financial markets.
On Tuesday, White House spokesman Ari Fleischer conceded there were "worrisome" signs in recent data including a dip in consumer confidence in July when stock prices were plummeting. |
