The US has currently not fulfilled the popular definition of a recession - a testimony to the Fed's slashing of interest rates and American resolve

The "R" word - recession - has been bandied around a lot of late, not only in relation to the US economy but also to that of the Republic.

The conclusion that there is a recession in the Irish economy is hard to sustain but the evidence for the US appeared more clear cut, at least until last week, when the release of GDP data cast doubt on the conventional wisdom. It now appears the US escaped recession and that the downturn in 2001 was the mildest in post-war history.

Recession appears simply to mean any period of weak growth to some headline writers but it is defined more tightly in economic analysis, albeit not in a completely unambiguous fashion.

The official arbiter of US recessions is the National Bureau of Economic Research (NBER), which defines a recession as a "significant decline in activity spread across the economy, lasting more than a few months", and visible in such areas as employment, industrial production and retail sales. On that basis, the NBER tentatively believes that a recession started in the US in March 2001.

An alternative approach, and one favoured by the financial markets and US media - not least because it is more readily measurable - is to define a recession as two consecutive quarters of negative GDP growth.

Both definitions emphasise falling economic activity and, in practice, usually overlap, in that most NBER recessions do coincide with two quarters of negative growth - but there have been exceptions. It now appears that 2001 is one such exception.

US GDP fell by 0.3 per cent in the third quarter of 2001 (the American preference is to annualise the figure and so it is reported as 1.3 per cent) and was widely expected to fall in the fourth.

In the event, GDP actually rose in the fourth quarter, albeit marginally (0.2 per cent annualised), so as yet the US has not fulfilled the more popular definition of a recession, although the numbers will no doubt be revised, and possibly downward.

The fourth-quarter GDP figure was remarkable, not only in being positive so soon after the September 11th attacks, but in its composition, which in part highlights the extraordinary resilience of the world's foremost market economy.

Spending by consumers surged by more than 5 per cent, driven by a car-buying spree, as households responded to the plethora of zero finance offers from car makers desperate to offload swollen stocks of unsold vehicles.

Government spending was also very strong (up more than 9 per cent), and the combination more than offset another plunge in investment spending by corporate America, the sixth consecutive quarter in which business capital spending declined.

The fourth-quarter GDP figure also encapsulates one unusual figure of the 2001 downturn - it was profit-lead and not consumer-lead, as were most recessionary periods in the past.

In fact, US consumer spending held up remarkably well in 2001 (it grew by 3 per cent in the year), which is testimony to the Federal Reserve's alacrity in slashing US interest rates, and to American resolve, with confidence quickly recovering from what was a devastating attack on the US homeland.

The US GDP figure could be revised into negative territory but, equally, a stronger positive gain may eventually be recorded. In any event, the existing configuration puts the decline in GDP in the second half of 2001 at only 0.3 per cent, which would make the US slowdown the mildest in post-war history in terms of lost output.

Moreover, the fourth-quarter GDP also included an enormous $200 billion (€230 billion) fall in inventories, the largest ever recorded, which augers well for a strong recovery in growth in the coming months. This is because firms will now have to start producing again to meet sales, having cut production over the past six months, as they were able to meet demand out of inventory. Stocks of unsold goods are now too low, having been much too high a year ago.

The outlook for profits is also brighter, not least because of yet another unusual aspect of US economic performance in 2001 - the rise in productivity. The fall in output last year may have been very mild but the scale of job losses was similar to the last recession in the early 1990s, so output per worker, or productivity, actually rose - which is abnormal in a downturn.

The corollary is that profits may bounce more quickly as the economy recovers, which is testimony to the flexibility of the US market economy. Making it difficult to fire workers, as in many western European countries, may appear a positive to some but, in the longer term it acts as a deterrent to hiring during an upturn so, ultimately, is negative for the economy, including the unemployed.

The US experience over the past year is testimony to the benefits of a flexible economy and it is not surprising then to see that country's currency, the dollar, appreciating.

Strong economies beget strong currencies - and not the other way round.

Dr Dan McLaughlin is chief economist at Bank of Ireland