- The Washington Times - Thursday, July 17, 2003

The official arbiter of recessions yesterday declared the recession over in a decision that relies heavily on reports showing uninterrupted economic growth since the end of 2001, despite a slump in manufacturing and employment that continues.

The decision makes the current recovery the first in U.S. history to witness a major hemorrhaging of jobs — with nearly a million jobs lost since the official end of the recession in November 2001. It already has surpassed the so-called “jobless recovery” of the early 1990s in severity.

The National Bureau of Economic Research, which by tradition has determined the beginnings and ends of recessions since it was established in 1920, said the best measure of the economy’s performance has been the Commerce Department’s quarterly estimates showing that the gross domestic product has expanded by 4 percent in an uninterrupted, if fitful, recovery since the third quarter of 2001.

The emphasis on the quarterly growth figures is a shift from earlier committee procedures of relying on more frequent monthly indicators that continue to show a loss of jobs and industrial output.

The shift appears to have been driven by both the unique nature of the 2001 recession and recovery and evolutionary changes in the economy.

But it comes at a time when rising unemployment, which last month hit a nine-year high of 6.4 percent, has become the focus of political debate.

Stanford University economist Robert Hall, chairman of the bureau’s business-cycle-dating committee, said the decision was not politically motivated.

Rather, he said the committee historically has put more emphasis on measures of output than employment.

The committee said economic growth has been possible, despite job losses totaling more than 2.5 million since the beginning of the recession in March 2001, because of unusually high productivity gains. Those productivity gains enabled workers to increase their take-home pay, and the increase in incomes nurtured growth in spending and the economy.

The panel cautioned that by declaring that the recession ended in November 2001, it is not saying “economic conditions since that month have been favorable or that the economy has returned to operating at normal capacity.”

Most economists believe the economy has failed to achieve a sustainable recovery, although they almost unanimously agree that the recession ended in late 2001. The problem, they say, is a stubborn weakness in corporate spending and hiring.

As recently as March and April, the economy appeared close to falling into recession again, Federal Reserve Chairman Alan Greenspan testified on Wednesday. For the recovery to continue, he said, corporations must start hiring and spending again.

He does not know when that will happen, and he attributes the delay to various causes ranging from the collapse of the stock market bubble to last year’s wave of corporate scandals and a historical uptick in productivity since the late 1990s.

“The situation is unstable,” he said. “Obviously, if you continue GDP growing and employment declining, at the end of the day everything is being produced by nobody.”

Mr. Greenspan said the most likely resolution of the economic dilemma will be a return to normal business practices and a pickup in economic growth and employment later this year.

He conceded, however, that the economy could fall back into decline, and pledged to use all the Fed’s resources to keep that from happening.

Mr. Greenspan maintained that the economy’s recovery has been below par partly because the recession was unusually brief and mild. At eight months in length, from March to November 2001, it tied the 1990-91 recession for brevity. But the loss of economic output was much smaller.

A shallow recession leads to a shallow recovery, according to Mr. Greenspan, because not as much ground is lost during the downturn. He attributed the mildness of the recession to the Fed’s dramatic interest-rate cuts and a huge stimulus from tax cuts and federal spending surges in the past two years.

“The economy hasn’t grown particularly, but it has not receded. This is a very unusual cycle,” he said.

The extraordinary stimulus helped the economy to absorb enormous shocks from the stock market collapse, the September 11 terrorist attacks and record-high gasoline prices, with the main effect of those shocks being to take “the buoyancy out of the economy,” he said.

The mild 2001 recession followed the longest economic expansion in U.S. history.

The country has experienced 31 recessions, which lasted an average of 18 months, since 1854.

Recessions have grown shorter and milder since the end of World War II, when the economy was dominated by manufacturing.

Since then, manufacturing has gradually declined to represent less than 15 percent of economic output.

The shift to a more diverse, service-oriented economy has diminished the influence of manufacturing-led cyclical swings, which led the country into recessions in the past, and led to longer and broader economic expansions and shorter and milder recessions.


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