There may be a "little" hope for the economy yet. I sure hope so. Surely, the market is set for a technical rally.
If this isn't a recession, I don't know what else you'd call it, but Mr. Uchitelle doesn't call it a "recession."
He calls it "weak growth."
August 30, 2001
Data Suggests Weak Growth, Not a Recession
By LOUIS UCHITELLE
From The New York Times
T he American economy grew more
slowly in the second quarter than at
any time in eight years, the Commerce
Department reported yesterday. Still, the
new numbers suggested to many economists
that if consumers continued to spend at their
present level, the nation could avoid a
recession.
Instead of shrinking in the second quarter, as
many forecasters had feared, the nation's
output of goods and services rose 0.2
percent, at an annual rate, the government
said. Consumers kept the economy above
water, stepping up their spending in the
spring and early summer — and, possibly,
setting the stage for stronger growth in the
current quarter.
Because consumers purchased a lot of
merchandise that was already sitting on
shelves, inventories fell $38.4 billion, a much
bigger reduction than the Commerce
Department had originally thought. That
suggests merchants now may have to begin
placing new orders to restock their shelves.
If so, the stepped-up industrial production
needed to fill the new orders would give the
economy a lift.
That was the widely shared hope yesterday,
even though stock prices fell after an initial
rally.
"The mix was pretty favorable," said Peter
Hooper, chief domestic economist at
Deutsche Bank North
America.
"The inventory sell-off was more than we
thought it would be, and that paves the way
for a pickup," he added
For a nation braced for the start of a
recession, the Commerce Department's
announcement that the economy grew at all
in the second quarter was in itself a lift, even
though the gain was smaller than the
department's initial estimate last month that
output had expanded 0.7 percent in the
April-to-June period.
Analysts said the new report suggested that
the country might in time look back on a
slowdown that lasted many months. It has
already lasted since the spring of last year,
when the boom suddenly gave way to tepid
growth of less than 2 percent in each of the
last four quarters.
"My best guess is that we will see a small positive number for the third
quarter, maybe about 1 percent, possibly a bit more," said Dean Baker, an
economist at the Center for Economic and Policy Research.
Other forecasters, more optimistic than Mr. Baker, predicted that growth
would reach 2 percent in the current quarter.
That would be a substantial improvement on the minuscule growth in the
second quarter, but not enough to stop the layoffs and shrinking corporate
profits that have been hallmarks of the weak economy over the last year.
"We have $40 billion in tax rebate checks to support the consumer in the
coming weeks," noted Bruce Steinberg, chief economist at Merrill Lynch
.
Stock prices initially rose on the news that the gross domestic product had
managed to expand in the second quarter rather than contract. Several Wall
Street analysts suggested that the growth, although slight, would suppress
talk of recession in the media, and the worries that such speculation spurs.
But a sell-off soon developed, perhaps in response to less happy details in
the Commerce Department's latest report. The Dow Jones Industrial average
fell 131.13 points, or 1.28 percent, to close at 10,090.9, its lowest level
since April 11. The Nasdaq was down 21.81 points, or 1.17 percent.
Corporate profits, which had shot up in the late 1990's, declined for the third
consecutive quarter. Pretax profits were 14.7 percent below their levels in
June of last year.
Capital spending, also a big source of strength in the booming 1990's,
declined for the second consecutive quarter, shrinking at an unusually large
annual rate of 14.6 percent. That was slightly more than the 13.6 percent
drop in the government's original estimate last month. With profits shrinking,
there is not much incentive to invest in new computers, machinery and all the
other tools used to produce goods and services.
Still, profits fell more slowly in the second quarter than in the first — a 3.6
percent drop versus 6.8 percent. "I would interpret that as fairly rosy
compared with where we were in the winter and spring," said Brent
Moulton, director of the division that calculates the gross domestic product
at the Commerce Department's Bureau of Economic Analysis.
A broad inflation index that is included in the output report — a broader
measure than the widely cited Consumer Price Index — suggested that the
inflation rate was inching down. The index of gross domestic purchase
prices, which covers purchases by households, business and government,
rose at a very mild 1.4 percent annual rate in the second quarter compared
with 2.7 percent in the first.
A falling inflation rate removes an obstacle to further reductions in interest
rates when the Federal Reserve's policy makers meet again in October. To
spur borrowing and encourage spending, the Fed has already cut short-term
interest rates seven times since January.
There were other drags on the economy. With growth slowing in Europe and
Asia, exports from the United States fell more than originally estimated. And
government spending was slightly weaker than originally thought, particularly
at the state and local levels.
Even more troubling, in Mr. Hooper's view, market indexes, having drifted
down in recent weeks, are near their lows of last spring.
"If stock prices drop noticeably more, then the likelihood of consumers'
continuing to expand their spending, even at the moderate second-quarter
pace of 2.5 percent a year, goes down," he said. "And if consumer spending
stops growing, that means either that inventories will go up tremendously or
firms will have to cut production."
Other analysts noted that if many employers emulate the Ford Motor
Company newly announced decision to eliminate executive
bonuses, such actions could also translate into a drop in consumer spending.
So far, though, consumers do not seem to be pulling back. Retail sales, for
example, rose in July, except for motor vehicles. And factory production,
which had been falling for months, stopped doing so last month. Meanwhile,
American workers' wages continued to rise in the second quarter faster than
inflation.
"As long as the consumer holds up," Mr. Hooper said, "we are likely to see
this sort of improvement."
nytimes.com |
