NCPA - National Center for Policy Analysis

Maybe We Didn't Have a Recession After All

March 1, 2002

New data from the Commerce Department and other sources suggest to some economists that we've spent the past year fretting about a recession we never had.

Even Federal Reserve Chairman Alan Greenspan avoided using the word "recession" in his testimony before Congress earlier this week, referring instead to a "period of considerable strain," a "downturn," and "the contraction phase of this business cycle."

Clearly, there was trouble during 2001 and for some sectors much of 2000. Nearly 1.5 million jobs have been eliminated since March 2001, and even before layoffs began, corporate profits began a descent of record proportions as stock prices tumbled. Yet through it all, consumer spending on houses, products, and services charged ahead, defying the expectations of most economists.

Here are the technical details:

  • The common rule of thumb is that two consecutive quarters of contraction in gross domestic product generally mark a recession.
  • The Commerce Department has revised fourth quarter economic growth and now finds that the economy grew at a 1.4 percent annual rate -- up from its previous estimate of 0.2 percent.
  • With the revision, the economy has now scratched out a 0.1 percent annual growth rate since the official beginning of the recession -- which the National Bureau of Economic Research, the official arbiter, put at March 2001.
  • So since then, GDP contracted during only one quarter -- not two.

While the NBER doesn't follow the two-quarter convention, every recession since World War II has included at least two quarters of GDP contraction -- though not always consecutively.

Of course, the numbers could always be revised yet again. Stay tuned.

Source: Jon E. Hilsenrath, "Revised Data Throw Doubt on Recession," Wall Street Journal, March 1, 2002.

 

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