Recession is dated from March

Panel was unsure of official designation until it got Oct. data

Sept. 11 made things worse

Many signs indicate short downturn, with rally by mid-2002

November 27, 2001|By Paul Adams | Paul Adams,SUN STAFF

Confirming what thousands of laid-off workers have known for months, a panel of experts said yesterday that the U.S. economy fell into a recession in March, ending a record 10-year expansion that witnessed the elimination of federal budget deficits and the birth of the new economy.

A committee of the National Bureau of Economic Research - a private group that is the official arbiter of recessions - said the contraction began in the spring, marked by declines in employment, industrial production and manufacturing sales, among other indicators.

But the bureau's Business Cycle Dating Committee, which is composed of six economists from universities including Stanford and Harvard, said the nation might have been spared a full-fledged recession had it not been for the Sept. 11 terrorist attacks.

The attacks caused consumer confidence to plunge further and destroyed any chance for a quick return to growth.

The announcement was widely anticipated on Wall Street, where the Dow Jones industrial average closed up 23.04 points. It came as many experts were already predicting the start of a rebound by the middle of next year.

Economists said low fuel prices, historically low interest rates, declining unemployment claims, high productivity and increased government spending will combine to lift sagging corporate profits in time for spring.

"I think it will turn out to be a mild recession," said Mark Zandi, chief economist for in West Chester, Pa. "[Yesterday's] announcement may signal that the recession is closer to being over than it is beginning. There are a lot of positive signs that the economy is finding the bottom."

Such optimism hasn't tempered President Bush's enthusiasm for an economic stimulus package, which remains stalled in Congress. Bush said the recession report vindicated the tax cuts he pushed through Congress last summer and shows the need for Congress to pass his stimulus plan before the holidays.

"I hope Congress moves quickly on an economic stimulus package," he said during an appearance in the White House Rose Garden. "The Senate needs to get a bill and get it into conference so we can resolve differences and I can sign it before Christmas."

Bush, who wants the package to contain corporate tax cuts and rebates, is at odds with the Democrat-controlled Senate, which has called for extended unemployment benefits for laid-off workers.

Economists disagree over the need for a stimulus plan, with some saying the recession may be over by the time such a plan is implemented.

"If most of the components are going to be enacted next year, then I don't think we need it," said Alan Levenson, chief economist for T. Rowe Price Associates Inc. in Baltimore.

But some economists say a plan that included a temporary payroll tax reduction would give consumers an immediate boost and could lift spending in time for the holidays, possibly leading to an abbreviated recession.

"That would provide an immediate benefit to everyone," said Keith Laggett, chief economist for the American Bankers Association.

The current recession - the nation's 10th since the end of World War II - ended an expansion that began in March 1991 and came after the National Bureau of Economic Research panel concluded that the economic slowdown had extended to all parts of the economy after the Sept. 11 attacks.

"Prior to the arrival of the data for October 2001, the committee was not sure that the contraction met the criterion," the committee said in a statement. "With a cumulative decline in employment approaching 1 percent and the very large decline in industrial production, the committee has concluded that the criterion has been met now."

A recession is often defined as two straight quarters of declining gross domestic product, the total value of goods and services made in the country.

The Commerce Department reported that GDP declined at a 0.4 percent rate in the third quarter, but grew at an anemic 0.7 percent annual rate in the second quarter. Fourth-quarter results aren't expected until after the first of the year.

In contrast, the National Bureau of Economic Research places limited emphasis on GDP in conducting its analysis. Instead, the group looks at various monthly statistics ranging from employment to personal income.

Based on data collected during the past year, the group determined the economy peaked in March, but not enough to conclusively point to a recession until recently.

"The economy could have just skirted past having a recession, but the impact of Sept. 11 shook consumer confidence and that had a wide impact on the whole economy," Leggett said.

He and several other analysts are predicting a "V-shaped" recovery, defined as a sharp decline in economic activity followed by an equally sharp rebound. As evidence, economists point to the Federal Reserve's 10 interest rate reductions this year and other economic stimulus, such as the recent decline in fuel prices.

"You're talking about freeing up right now somewhere in the neighborhood of $20 billion to $25 billion of income that was going to meet energy costs but now can be used for other purposes," Leggett said.

The longest slumps since World War II lasted 16 months each. The shortest lasted six months, ending in July 1980. The recession before this one lasted eight months.

However, economists warn that there are still tough months ahead. Job losses and dismal corporate earnings reports will likely continue through this winter, leaving consumers and investors wary.

Signs already are pointing to declining holiday retail sales as consumers seek to conserve cash in an uncertain environment. Many retailers reported diminished year-over-year sales over the Thanksgiving holiday weekend - often considered an important indicator of seasonal spending habits.

Wire services contributed to this article.

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