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Strategies & Market Trends : John Pitera's Market Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: John Pitera who wrote (5793)	3/5/2002 3:08:51 PM
From: Jon Koplik	Read Replies (2) \| Respond to of 33421

Reuters -- Officials Question if Recession Was Real. (This was from the Silicon Investor home page). *************************** Officials Question if Recession Was Real Mar 4, 2002 5:26pm ET By Anna Willard WASHINGTON (Reuters) - Amid burgeoning signs of recovery, officials at the U.S. Treasury and White House on Monday questioned if the downturn in the world's largest economy actually constituted a recession. "There is now a chance that there may not even have been one (a recession)," Randall Quarles, the U.S. executive director at the International Monetary Fund and designated assistant Treasury secretary for international affairs, said at a banking conference in Washington. "The recession has been extraordinarily mild and short." The official arbiter of business cycles, the National Bureau of Economic Research, declared in November that a U.S. recession began in March of last year. A recession is loosely defined by some economists as two consecutive quarters of declining gross domestic product. The NBER, however, uses a broader definition which involves indicators such as employment, income and industrial production and does not use GDP as a yardstick. According to the NBER, some, but not all, of the periods it has previously defined as recessions have comprised two or more quarters of economic contraction. Since the positive data for the fourth quarter made the third quarter the only negative one, some economists have questioned the NBER's characterization. The economy grew at a surprisingly fast annual rate of 1.4 percent in the fourth quarter after shrinking 1.3 percent in the third quarter. Randall Kroszner, a member of the White House's Council of Economic Advisers who was at the same conference, also questioned whether the economy had ever entered recession. "Some people use two quarters of negative growth. We haven't had that," Kroszner said. One private sector economist has even written to the NBER asking the group to take back their recession call. "In light of a more complete picture of how the economy actually behaved in 2001, I ask you to take back your recession call," Ken Mayland, an economist at ClearView Economics wrote in a letter to the committee. Mayland argues that for a recession to be declared, there must be a significant decline in the economy for a sufficient duration. But the NBER is sticking by its call. One member of the NBER business-cycle dating committee explained that the panel does not make a decision based solely on gross domestic product because the series is revised so often. "If we used it, we would have a volatile set of dates (for business cycles) that would be subject to change," Victor Zarnowitz, one of the NBER's business-cycle dating committee, said in an interview with Reuters. Each set of quarterly GDP data is revised three times. Additionally, Commerce issues "annual revisions," usually around the middle of each year, in which it overhauls the series to incorporate new source data. It also sometimes makes methodology changes that affect the historical GDP numbers. RECOVERY ON THE WAY The two U.S. officials said the economy is poised for slightly stronger growth, with Quarles saying the "building blocks for recovery are already in place." Kroszner said the effects of monetary policy easing -- the U.S. Federal Reserve has cut rates 11 times over the last year to try and kick-start the economy -- are mostly still to come. Indeed, Zarnowitz agrees the economy may already be headed for recovery. Nevertheless, he says the committee will not speed up its judgement and it could be months before the panel decides on the turning point. "If we were to rush (on the judgement), we would satisfy some critics but we are not going to do that," he said. But Kroszner warned of downside risks to the positive outlook evident in weak industrial output numbers for January and the last employment report which showed job losses in many sectors. He pointed out that even though the unemployment rate fell, this was mainly due to a shrinking workforce and not to the fact that more people found jobs. Quarles said the world needs more than just one engine of growth and urged Japan, the No. 2 global economy, to do more to tackle bad loans and deflation. Kroszner said that the Japanese government has made steps in the right direction but he too said more needed to be done. He added that he expects to see the European economy improve in the next year but said the recovery would not be as strong as that forecast in the United States because the European Central Bank has not moved as aggressively as the Fed to cut interest rates. Copyright © 2002 Reuters Limited.