O my WSJ today headlining the "Double Dip" phrase:)
pay-site charts can't be copied.
online.wsj.com
U.S. Economy Appeared
To Stall in Fourth Quarter
As Tepid Recovery Falters,
Seeing Signs of a 'Double-Dip'
By JON E. HILSENRATH and GREG IP
Staff Reporters of THE WALL STREET JOURNAL
Recent disappointing economic reports suggest the nation's economy barely grew at the end of last year and might have contracted, a development that is sure to raise new concerns about an already disappointing recovery.
Factory production declined in December and the nation registered a record trade deficit in November, according to two government releases last week. Other reports earlier this month showed employment levels shrank in both November and December.
According to a survey of 20 economists by Macroeconomic Advisers, a St. Louis forecasting firm, the consensus is now that the nation's gross domestic product -- the broadest measure of economic output -- expanded at a tiny 0.5% annual rate in the fourth quarter of 2002. Just a week earlier, a comparable survey by the firm had put the growth rate at 1.1%. And some economists, including those from Nomura Securities International, J.P. Morgan Chase and Macroeconomic Advisers itself, revised their fourth-quarter growth estimates into negative territory.
"A double-dip scenario is probably going to be talked about quite a bit more in the next couple of weeks," said Bill Sharp of J.P. Morgan Chase.
A double-dip is when the economy starts to recover after a recession but then begins contracting again. Although there is no hard and fast rule for what constitutes a recession, economists generally believe that two consecutive quarters of shrinking GDP amount to such a downturn. The official decision comes from the National Bureau of Economic Research, a private research group in Cambridge, Mass., comprised mainly of academic economists.
The U.S. economy officially entered recession in March 2001, but it appeared to begin recovering at the end of that year. It grew at a respectable annual rate, slightly above 3%, between the end of 2001 and September. But corporate-governance scandals and tensions with Iraq helped send stocks down and oil prices up, damping business investment, hiring and consumer spending late in the year.
Distorted Picture?
Few economists believe a double-dip recession is in the cards right now. The abrupt slowdown in the U.S. economy in the fourth quarter followed strong 4% third-quarter growth. Some analysts suggest that fourth-quarter performance might have been distorted by a lockout at West Coast ports and the see-saw pattern of incentive-driven automobile sales.
Moreover, the slowdown hasn't yet shaken most economic forecasters' belief that the economy will grow at a more comfortable pace this year. On average, forecasters expect that modest consumer spending growth and a gradual pickup in business investment will lead to 2.5% expansion of the economy in the current quarter, on an annualized basis, and an acceleration as the year progresses. There are positive signs: Automobile sales jumped in December, a sign of consumer resilience. Also, prospective homebuyer traffic through model homes rose in early January, the National Association of Home Builders said Friday.
Yet the economy is clearly flashing mixed signals about its direction.
"We had six out of seven months that were favorable in orders compared to a year ago," said Tony Raimondo, chief executive of Nebraska's Behlen Manufacturing Co., which makes fences and other products. "Then in October, November and December, each month has been soft relative to the same month a year ago. It has been very discouraging," he said. In response, Mr. Raimondo laid off about 60 of his about 1,200 workers in November, though he says he's still expecting a pickup in orders this year.
It is possible that the economy stalled for just the final three months of 2002 and is already growing again. In early 1993, for example, less than two years after the 1991 recession ended, the economy paused and then resumed growth. But if government statisticians report next week that the economy did shrink in the fourth quarter, it will surely fuel calls for even more economic stimulus. This could strengthen President Bush's hand in pushing his recent plan for $670 billion in tax cuts over the next 10 years.
Federal Reserve officials, who cut their target for short-term interest rates to a 41-year low of 1.25% in November, don't appear worried enough by recent data to cut rates again when they meet next week. Prices of stocks and corporate bonds have largely held on to gains made since their October lows. This has strengthened Fed officials' confidence that a renewed contraction in economic activity is not beginning, though no noticeable upturn has begun, either.
"While there obviously are still downside risks in the outlook, for the first time in a while I think the chances that actual growth will exceed the consensus forecast somewhat are about equal to the chances that it will come in below it," Federal Reserve Bank of Richmond President Alfred Broaddus said in a speech last week.
Still, if data over the coming two months suggest the economy isn't escaping what Fed Chairman Alan Greenspan calls a "soft spot," the argument for acting at the Fed policymakers' subsequent meeting in March will be strong.
The prime factor behind economists' latest downgrading of fourth-quarter performance was the Commerce Department's Friday report that the trade deficit surged in November to a monthly record of $40.1 billion. (The previous record was $38.1 billion, set in August.) The report highlighted two continuing drags for the economy: The nation's trading partners are struggling to emerge from their own downturns, and domestic producers are fighting against intense import competition, although the dollar's recent decline should offer some relief. (See article.)
Merchandise exports increased only 1% in November from October, to $83.2 billion. Sales of meat, animal feeds and certain industrial supplies rose. Imports, meanwhile, jumped nearly 5% to $123.3 billion on strong demand for foreign consumer electronics, toys and clothing, much of it in anticipation of the holiday shopping season.
After the West Coast port dispute held down imports in October, economists had expected the trade deficit to widen in November, but not by so much. The deficit with China hit $10.5 billion -- its second-widest ever -- and deficits with Japan and South Korea were also unusually wide. The growing trade deficit implies domestic producers lost U.S. market share to foreign competitors.
"U.S. manufacturing output has been reined in by the advances of foreign manufacturers," said John Lonski, an economist with Moody's Investor Services. That was highlighted in a separate report by the Fed on Friday that industrial production declined by 0.2% in December from November, the fourth decline in five months.
Domestic car and truck production dropped from an annual rate of 12.9 million units in November to 11.9 million in December, suggesting December's surge in car sales came mostly out of inventories. Production may start to rise again, as those inventories are replenished. Excluding cars, December industrial production was up 0.2%. Output of semiconductors and computers rose, to levels 20% and 16% above those of a year earlier, respectively, suggesting a modest resumption in business equipment and software purchases. December production of semiconductors and computers were both up 1.2% from November.
There are several explanations for the strange, halting pace of this economic recovery. Consumers didn't pull back their spending much during the downturn in 2001, so there was less pent-up demand to fuel a rebound. Concerns about a possible war with Iraq, terrorism and the corporate accounting scandals have undermined business confidence, making executives less willing to invest and hire. It has also taken surprisingly long to unwind stock-market and technology-investment excesses of the late 1990s. Meanwhile, strong productivity growth has allowed companies to increase their output without adding additional workers. And competition from abroad has intensified, most notably from China, which has emerged as a major exporter to the U.S.
The latest batch of downward revisions in growth estimates underscores just how hard it is for the economy to pull out of the slump. Twenty-two months after the recession's beginning, employment has not turned up meaningfully. By contrast, employment began rising on average 16 months after the start of the previous nine recessions. And while overall GDP rose in the first nine months of 2002, corporate profits are still below their 1997 peak and business investment has fallen for two straight years, the longest since World War II.
The most recent pause in economic growth could signal "some kind of second recession," Robert Hall, a Stanford University economics professor, said on Thursday, before the latest numbers were released. Mr. Hall is also chairman of the National Bureau of Economic Research's business cycle dating committee, the official arbiter of the beginning and end of downturns. The committee is so uncertain about just where the economy is going that it has declined to declare that the 2001 recession has even ended yet. Committee members say it is unlikely to do so for at least a few months.
"It has just been an uphill battle," says Margaret Holloway-Key, a 44-year-old Philadelphia woman who lost her job as a customer service representative with office supply giant Staples Inc. in March 2001. She has struggled to find steady work since and is now doing temporary work for less pay.
-- Neil King Jr. contributed to this article.
Write to Jon E. Hilsenrath at jon.hilsenrath@wsj.com and Greg Ip at greg.ip@wsj.com |
