- The Washington Times - Monday, September 30, 2002

According to several measures, the most recent recession, which arguably began shortly before George W. Bush entered office, was not as mild as some popular economic statistics have indicated.
Gross domestic product (GDP), which measures the economy's total output of goods and services, began falling during the first quarter of 2001. The annual rate of decline was 0.6 percent. The GDP fell for the next two quarters as well, declining at annual rates of 1.6 percent and 0.3 percent, respectively. It has been those relatively small declines that have led many analysts to report that the latest recession has been among the mildest in the postwar period. Indicative of how prolonged the economic downturn has really been, however, consider that real GDP in the third quarter of 2001 ($9.19 trillion) was still less than real GDP in the second quarter of 2000 ($9.21 trillion).
Complicating the picture is the fact that the National Bureau of Economic Research (NBER) a nonpartisan, private organization that serves as the official arbiter of the nation's business cycle does not follow the so-called textbook definition of a recession: two consecutive quarters of declining GDP. Instead, NBER concentrates on four monthly economic statistics: current employment, current industrial production, real (i.e., inflation-adjusted) manufacturing and wholesale-retail sales, and real personal income less transfer payments (e.g., welfare and unemployment assistance). An examination of these four data streams led the NBER to officially declare in November 2001 that a recession had begun in March 2001.
Close inspection of NBER's four primary statistics indicates that three of them actually peaked during 2000, suggesting that the recession may have actually begun even earlier than 2001. Only current employment peaked in March 2001. Even in this case, however, NBER's data clearly reveal that the increase in employment during the 12 months preceding the onset of recession was much smaller in 2000 than the average increase of the six previous recessions.
NBER's other three statistics were already heading south well before March 2001. Industrial production peaked in September 2000, six months before the onset of NBER's official recession. Unlike the behavior of industrial output prior to the six previous recessions, when it continued to rise on average right up to the business cycle's peak, industrial output had actually been declining for six months before March 2001. Moreover, industrial production declined for 15 consecutive months beginning in October 2000. Compared to an average recessionary decline of 4.6 percent, industrial output during those 15 months had fallen 8.3 percent.
Real manufacturing and wholesale-retail sales were at the same level in January 2000 as they were the following December, when they began their clear descent. Real personal income less transfers remained essentially stagnant since mid-2000 before beginning an obvious decline in late 2000. On average, for nine months preceding each of the six previous recessions, real personal income less transfers had relentlessly increased.
Beyond a fair analysis of NBER's data that suggests the actual onset of recession in 2000, other economic indicators point to a deeper downturn than is commonly recognized. Consider fixed investment. It essentially peaked in the second quarter of 2000; it began declining during the fourth quarter; and it has now fallen for seven consecutive quarters. That is the first time that has happened in the postwar period. Considering what has happened to corporate pretax profits, nobody should be surprised. Pre-tax profits for nonfinancial corporations in the 2002 first quarter were nearly 40 less than their level in the first quarter of 1999. Manufacturers' profits were down 57 percent.
Meanwhile, the stock-market bubble, which began inflating during the Clinton administration's first term, has burst. (Recall that Fed Chairman Alan Greenspan warned about "irrational exuberance" in December 1996.) Since the biggest financial bubble burst in March 2000, share prices have marked their biggest drop since the Depression. Altogether, the stock market has shed $8 trillion in market capitalization. Since its March 2000 peak, the S&P; 500 is off by approximately 45 percent. The Nasdaq composite is down more than 75 percent over the same period.
All things considered, two conclusions seem obvious. First, the recession the Clinton-Gore administration bequeathed to President Bush was longer and nastier than commonly believed, arguably beginning before its second term ended. Second, the precisely timed anti-recessionary tax cut enacted during the first half of 2001 was even more necessary and helpful than previously appreciated. Imagine where the economy would be today without it.

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