- The Washington Times - Wednesday, December 10, 2003

ASSOCIATED PRESS

The longest economic expansion in U.S. history faltered so much in the summer of 2000 that business output contracted for one quarter, the government said yesterday in a comprehensive revision of the gross domestic product.

Based on new data, the Commerce Department said that the gross domestic product — the value of the country’s total output of goods and services — shrank by 0.5 percent at an annual rate in the July-to-September quarter of 2000. The government previously said GDP was rising at a weak annual rate of 0.6 percent during that quarter.

The GDP returned to positive territory in the October-to-December quarter of 2000, rising at an annual rate of 2.1 percent, before slipping back into negative territory in the first quarter of 2001. The first, second and third quarters of 2001 all experienced falling GDP as the country slogged through its first recession since 1991.

The National Bureau of Economic Research, the official arbiter of when recessions begin and end, has determined that the recession began in March 2001 and ended in November of that year.

It is not expected to change those dates based on the revised GDP data because the bureau relies on monthly data, rather than quarterly statistics, to better pinpoint when recessions begin and end. Economists also generally believe that GDP must contract for two consecutive quarters for a period of economic weakness to be called a recession.

Still, Republicans are certain to use the GDP revisions to bolster their contention that President Bush inherited a recession when he took office in January 2001, even though the downturn did not officially begin until two months after he took office.

Even before the revisions, the GDP data showed that the economy hit a brick wall in the summer of 2000 with growth slowing to a near standstill, reflecting the impact of the bursting of the stock market bubble in early 2000.

“It is not surprising that the bursting of the biggest financial bubble in several generations would lead to a collapse of new investment and a period of painful economic readjustment,” said Rep. H. James Saxton, New Jersey Republican and vice chairman of Congress’ Joint Economic Committee.

The third quarter 2000 revision to the GDP was the most striking of scores of GDP revisions released by the Commerce Department as part of the agency’s latest update of the statistics, which the government does every four or five years based on more comprehensive economic data becoming available and also revisions in the methodology used to compile the GDP. The last such revision occurred in 1999.

As part of the methodology changes, the government changed the way it computed the impact of large insurance losses caused by disasters such as earthquakes and hurricanes to smooth out their effect on the GDP. It also modified the way it treated interest earned by banks on deposits.

Using these new ways of compiling various components of the GDP, the department revised the data going back to 1929. However, the various changes made only small differences, usually a 0.3 percentage point or less, in any year.

For 2002, GDP growth is now listed at 2.2 percent, down from the previously reported 2.4 percent. Growth in 2001 is now put at 0.5 percent, an upward revision from the 0.3 percent previous estimate.

“There is no major rewriting of economic history,” said Steven Landefeld, head of the Commerce Department’s Bureau of Economic Analysis. “There are no significant changes to trend growth and the last recession is still mild relative to past recessions.”


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