More information from the Washington Post, July 28th:
Nevertheless, the longest economic expansion in U.S. history continued through the second quarter. Despite the recent slow growth, the nation's unemployment rate last month was a only 4.5 percent, six-tenths of a percentage point above the three-decade low reached last fall.
Given the plunge in business investment and a steep fall in corporate profits, Federal Reserve Chairman Alan Greenspan said this week that "what is really quite remarkable is that with this extraordinary litany of negative elements that have been going on day by day, month by month, the economy is still standing." Not only that, he said, but "the rate of deterioration is slowing, very clearly. . . . And that's suggestive of the fact that there is some fundamental support in the system."
Many other forecasters and policymakers believe the liquidation of inventories and cuts in business investment will run their course in coming months with economic growth gradually improving.
At the White House, President Bush described the economy as "puttering along."
"It's not nearly as strong as it should be," Bush said. But the income tax refund checks that began going out this week should help revive growth, he said. "Given the economic news of today, the tax cut looks more and more wise," Bush said.
Peter Hooper, chief economist at Deutsche Banc Alex. Brown in New York, agreed that growth is likely to pick up. But he cautioned that yesterday's report on the gross domestic product -- the measure of production of all goods and services in the United States -- showed that "the economy is in a bit more fragile state than we had previously thought. . . . Without a significant chunk of the tax rebate going into spending very soon, we worry if GDP growth will even achieve the modest 1.5 percent rate we forecast for this quarter."
Bruce Steinberg, chief economist at Merrill Lynch & Co. in New York, was more optimistic.
" "Growth in the third quarter should be slightly firmer, thanks to tax rebates, through we still expect it to be weak at around 2 percent," Steinberg said. "But we still look for a rebound by the fourth quarter, with growth around 3.5 percent and growth around 4 percent next year."
Steinberg acknowledged that the Merrill Lynch predictions were a good deal stronger than those of many other economists, public and private. For instance, Federal Reserve officials also expect a pickup but they generally are looking for growth of 3 percent to 3.25 percent in 2002.
Bill Cheney, chief economist at John Hancock Financial Services in Boston, said: "While we're still skating on the edge of recession, I think the outlook for the economy is now quite encouraging. . . . Outside of the manufacturing sector, things aren't all that bad.
"Unemployment is still about as low as it's been in a generation, people are still building and buying homes as fast as ever, foreigners still see the United States as the best place in the world for their money, and inflation remains dormant. The Fed has been pumping out money all year, pushing down short-term interest rates and making it easy to finance homes, autos, furniture and even vacations," Cheney said.
As part of the GDP report, the Commerce also revised its estimates for the previous three years, 1998 through 2000. Most of the revisions, which were based on new and revised data and some methodological changes, were minor. However, the department had significantly overestimated investment last year in business spending on software and equipment, and, to a lesser extent, consumer spending. The result was a downward revision in growth for the period from the fourth quarter of 1999 to the fourth quarter of last year. The new estimate is 2.8 percent, down from 3.4 percent.
On a quarterly basis, however, the gain for last year's final three months was revised upward to a 1.9 percent annual rate from 1 percent, and the increase for the first quarter of this year was raised to 1.3 percent from 1.2 percent.
The Commerce Department reported separately yesterday that new home sales last month ran at an annual rate of 922,000, up 1.2 percent from the month before. Sales in recent months have moved up and down within a narrow range at what historically is a very high level. Such sales are supporting a high rate of construction of new housing, with investment in that sector up at a 7.4 percent annual rate in the second quarter, according to the GDP report. In the first quarter, housing was also a strong contributor to growth, rising at an 8.5 percent rate.
In another report released yesterday, the University of Michigan said its final reading on its consumer sentiment survey for this month was 92.4, slightly lower than June's final number of 92.6. After falling sharply from December through April, the university's index has stabilized as consumers' expectations for their personal financial situation and the overall economy have improved.
washingtonpost.com |
