ECONOMY: Forecast for

ECONOMY on Page 4A Continued from 1A growth looks dismal FORECAST LOOKS GRIM Report: Economic growth a tiny 1.1%

Published: Thursday, August 1, 2002 at 6:01 a.m.
Last Modified: Thursday, August 1, 2002 at 12:00 a.m.
By WILLIAM NEIKIRK Chicago Tribune WASHINGTON - The government issued a sobering report Wednesday showing the economy suffered a sudden weak spell in the second quarter, raising concerns that the recovery will poke along for the foreseeable future, or perhaps even stall.
At the same time, the Commerce Department made some dramatic subtractions from recent economic growth reports. Most notably, the government said the economy actually declined in three of the four quarters in 2001, rather than falling in only the third quarter, as had been previously re- ported.
Rarely do government reports convert a single quarter from positive to negative, much less three. And the changes aren't just academic.
To many economists, the revisions signaled that the economy entered 2002 with much less momentum than experts had thought. And productivity, or efficiency, gains do not appear to be as high as those trumpeted by Federal Reserve Chairman Alan Greenspan, said economist Michael Drury of Memphis, Tenn.-based McVean Trading Co.
In its preliminary report for gross domestic product, the broadest measure of the nation's output of goods and services, the government said second-quarter growth was a puny 1.1 percent after a sharp first-quarter rise of 5 percent.
The government revised the first-quarter growth figure from an originally reported 6.1 percent. The January to March GDP increase was so high because companies were beginning to restock their inventories, and not because of a sharp rise in consumer spending.
Most analysts said the 1.1 percent April-to-June growth rate was weaker than the 2.5 percent to 3 percent that they had expected, causing them to be less optimistic for the rest of the year. Given the small number, many said they expected little or no progress in reducing unemployment in 2002.
The economy is "moving along in a tired kind of way," said Kurt Barnard, president of the Barnard Retail Trend Report and Barnard Retail Consulting. He said he fears an anemic job market will trigger consumer retrenchment.
Consumer spending rose by only 1.9 percent in the second quarter compared with 3.1 percent in the first. A surge in imports, possibly caused by the threat of a West Coast longshoremen's strike, reduced economic growth. Business investment fell by 145 percent, mostly from less construction.
But business spending on software rose 2.9 percent, one of the most positive signs in the report.
Revisions of last year's economic growth figures stunned analysts. The first quarter of 2001 showed a 0.6 percent decrease rather than a previously reported 1.3 percent increase. The second quarter brought a negative 1.6 percent instead of a 0.3 percent rise. And third-quarter GDP fell by 0.3 percent, compared with a previously reported 1.3 percent decline.
This took the wind out of the Bush administration's frequent claim that there was no recession last year, just a one-quarter blip influenced by the Sept. 11 attacks. Only Saturday, Treasury Secretary Paul O'Neill said he doubted whether the country had experienced a recession in 2001. The usual rule of thumb for a recession is back-to-back quarterly declines in GDP.
"We just don't have as much economic momentum as we thought we had," said David Wyss, chief economist at Standard and Poor's Corp. in New York. He lowered his growth forecast for the rest of the year to 3 percent from 3.5 percent.
Not only was the second-quarter report discouraging to Americans thrown out of work by a sluggish economy, but it also was particularly disappointing to the Bush administration, which is under election-year attack by Democrats for its management of the economy.
Nonetheless, the administration stressed the positive. President Bush said the last three quarters have shown growth after last year's recession.
"It's a positive trend," he said. "It's headed in the right direction, but the growth isn't strong enough as far as I am concerned."
Senate Majority Leader Tom Daschle, D-S.D., called the slow second-quarter growth "very alarming," adding, "We need new economic leadership."
With the report, analysts said the odds of a second or "double-dip" recession had increased.
But most said they believed the recovery would continue, although at a moderate pace of about 3 percent for the year.
To many economists, the country appears to be experiencing another "jobless" recovery like the one in 1990-1991, when it took several years to significantly dent unemployment. That downturn was a contributing factor in the 1992 defeat of President Bush's father.
(EDITORS: STORY CAN END HERE) John Ryding, chief economist at Bear Stearns in New York, said the country likely will avoid another recession. He said recent stock plunges will not cause Americans to rein in spending. The wealth they have lost in the market will be offset by the rising values of their homes, he said.
The Federal Reserve issued a report Wednesday providing anecdotal evidence that the recovery in recent weeks was still sluggish. In its "beige book" survey of Fed regions, the central bank said, "district reports suggest the economy expanded modestly in recent weeks, with an uneven performance across sectors."
Another report by the National Association of Purchasing Management for Chicago showed that Midwestern manufacturing activity slowed in July. The organization's index of manufacturing activity declined to 51.5 percent in July from 58.2 percent in June. Still, manufacturing in the region expanded for the sixth straight month, the report said.
Economic doldrums AT A GLANCE
  • The government said the economy actually declined in three of the four quarters in 2001, rather than falling in only the third quarter.
  • To many economists, the revisions signaled that the economy entered 2002 with much less momentum than experts had thought.
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