Election Section

Economy doing better, but recession lingers

The Associated Press
Saturday April 28, 2001

WASHINGTON — The economy surprised the naysayers by turning in a solid growth rate of 2 percent in the first quarter – double what had been expected for a period in which there had been fears a recession might be beginning. 

The Bush administration called the rebound “nothing but good news.” Private economists also found it encouraging but expressed concern that the recession threat was not over. 

The advance in the gross domestic product in the January-March quarter was not only bigger than anticipated but also was double the 1 percent annual rate of growth registered in the last three months of 2000. 

On Wall Street, the news lifted stocks. The Dow Jones industrial average gained 117.70 points to close at 10,810.05. 

“We’re back from the brink,” said a hopeful Richard Yamarone, economist with Argus Research Corp. “The economy, however, remains fragile. Looking ahead, people shouldn’t expect miracles. Economic growth will probably be weaker in the second and third quarters.” 

GDP is the total output of goods and services produced within the United States and is considered the broadest measure of the nation’s economic health. The first-quarter figure, released Friday by the Commerce Department, marked the government’s most up-to-date reading. 

Hardy spending by consumers, especially on costly manufactured goods, such as cars and furniture, and an improved trade performance were major forces boosting first-quarter growth. That helped to offset weaknesses elsewhere, including a drop in business investment in computers and other equipment. 

The Bush administration, which had been concerned that the economy could dip into recession in President Bush’s first months in office, welcomed the pickup. 

“Our 2 percent real growth rate in the first quarter is nothing but good news compared to what most people expected,” said Treasury Secretary Paul O’Neill. 

Earlier this year, Federal Reserve Chairman Alan Greenspan worried that economic growth might have stalled out, ending the country’s record 10-year-long economic expansion. Others feared that economic output may have actually declined. 

The Fed slashed interest rates four times this year to stave off recession and rejuvenate the economy. Even with the first-quarter bounce back, many economists believe the Fed will cut rates again on May 15. 

With first-quarter GDP in positive territory, economists believe the United States may have escaped the period of maximum danger for recession. 

“The report suggests we have a better chance of achieving a soft landing for the economy than many thought just a few weeks ago,” said Lynn Reaser, chief economist for Banc of America Capital Management. 

Others contend that the threat of a recession remains, with the possibility that rising unemployment in coming months could yet precipitate a plunge in consumer spending, the fuel of economic growth. 

“To date, the economy is recession free,” said Mark Zandi, chief economist at Economy.com. “But the risks are still very high that the expansion could come unraveled and that we end up in a full-blown downturn.” 

Zandi and other economists predict the economy will lose altitude in the current second quarter, with some saying that GDP may slip into negative territory. “The second quarter is probably going to be the low point for the economy,” Zandi said. 

Still, most analysts believe the economy will return to more healthy growth toward the end of the year. 

An inflation gauge tied to GDP rose at an annual rate of 3.3 percent in the first quarter, the fastest pace in a year, reflecting higher costs for services such as medical care and for natural gas and electricity. But the rise didn’t trouble economists, who believe the weak economy will temper inflation pressures in the months ahead. 

In a speech Friday, Greenspan offered another reason not to be alarmed. He predicted the growth in the productivity of U.S. workers would continue, even while the economy slows. Increasing output per hour of work is a key to growth without inflation – and a major factor in growing government surpluses. 

In the first quarter, the economy’s biggest boost came from consumer spending, which rose at an annual rate of 3.1 percent. Leading the way: a big jump in spending on durable goods – such as cars, appliances and furniture – which soared at an annual rate of 11.9 percent after having shrunk at an annual rate of 3.1 percent in the fourth quarter. 

“The storm is beginning to subside,” said Jerry Jasinowski, president of the National Association of Manufacturers, whose industry has been hardest hit by the slowdown. 

The biggest drags on first-quarter growth came from a continuing effort by businesses to reduce an overhang of unsold goods. That shaved 2.5 percentage points off growth. A drop in business investment on computers and other equipment, which the Fed cited as a new worry in its latest rate cut on April 18, subtracted 0.2 percentage point from growth. 

On the Net: 

GDP report: http://osecnt13.osec.doc.gov/public.nsf