By growing at a 1.7 per cent annual rate in the final quarter, the United States shows that it never was in a real recession, writes Conor O'Clery.
The US Commerce Department said yesterday that the economy of the United States grew at a 1.7 per cent annual rate in the final quarter of 2001, far more than it previously estimated.
This means that only one quarter - the July-September period - of 2001 showed negative growth, confirming that the world's biggest economy was never in recession, at least not by the common definition of recession, which is two straight quarters of contraction.
The report indicates a remarkable turnaround in US economic performance in the wake of the September 11th attacks, confounding the pessimistic pronouncements late last year of most analysts, including the chairman of the Federal Reserve, Mr Alan Greenspan.
However, the US economy still grew at only 1.2 per cent overall last year, its worst performance since a 5 per cent contraction in 1991.
The Commerce Department said its estimate of gross domestic product, a measure of goods and services produced, rose from its initial figure of 0.2 per cent to 1.7 per cent annually in the October-December period last year because of strong government investments, consumer spending, especially on cars, and a narrower trade deficit.
With the publication yesterday of the Commerce Department's revised data, analysts are questioning the conclusions of the official US arbiter of recessions, the National Bureau of Economic Research, which announced in November that the US entered recession in March. The bureau is a non-profit body dedicated to understanding how the economy works, based on research by more than 600 leading university professors around the US.
Its definition of recession is "a significant decline in activity spread across the economy, lasting more than a few months, visible in industrial production, employment, real income and wholesale-retail sales". This decline began in March 2001, ending a 10-year period of expansion, it said.
On March 20th, it said payroll employment increased slightly in February, the first increase in seven months, which, with other signs, indicated "that the decline in activity that began last year may be coming to an end".
Another report released yesterday showed an increase in consumer sentiment and a bigger-than-expected rise in initial jobless claims. Unemployment traditionally keeps rising some months after a slowdown has ended. The number of unemployed workers seeking benefits for the first time rose by 18,000 to 394,000 last week, the highest in two months.
The University of Michigan's consumer-sentiment index showed a rise in March to 95.7 from 90.7 in February. Consumer spending rose at a rate of 6.1 per cent in the last quarter of 2001. However, business investment fell 13.8 per cent and inventories continued to fall.
Merrill Lynch yesterday predicted that US economic growth in the current quarter could far exceed predictions and show an increase of between 5 and 6 per cent increase in GDP. Other predictions range between 3 and 4 per cent.
The forecasts underline the possibility that the Federal Reserve may soon begin raising short-term interest rates, which are at 40-year lows following 11 reductions last year.
