What many economists and consumers alike have feared for months officially became a reality yesterday with the announcement by one of the nation”s leading economic research firms that the United States has indeed entered a recession.
The National Bureau of Economic Research, comprised of economics professors and experts, declared yesterday that a recession has in fact been under way since exactly 10 years of record economic growth peaked in March.
Although the activity started to decrease before the Sept. 11 terrorist attacks, a six-member panel of the bureau, which officially determines when recessions begin and end, also said the recession could have been avoided had the attacks not occurred.
“Before the attacks, it is possible that the decline in the economy would have been too mild to qualify as a recession,” the panel said in its report. “The attacks clearly deepened the contraction and may have been an important factor in turning the episode into a recession.”
While investigating the state of the economy, the panel focuses on monthly data instead of quarterly data. The significant factors the panel looks at include industrial production, employment, income, and wholesale and retail trade.
This is the 10th official recession since World War II. The last recession, which began in July 1990 under George Bush”s presidency, lasted only eight months but was ample reason for the American public to not re-elect Bush in the 1992 campaign.
Experts and consumers are predicting the current recession to be short and mild.
According to a study conducted by the University”s Institute of Social Research, consumer confidence is slowly on the rise, with many predicting the recession will end by the middle of next year.
“The outlook for the national economy has not changed,” said ISR Director Richard Curtin. “The vast majority of consumers thought the economy was in recession these past few months, and the majority of consumers expect the economy to remain in recession throughout mid-2002.”
Curtin said consumers expect their income gains during the next year to be minimal but also expect a near-zero inflation rate. “As a consequence, their financial prospects are not near as grim as one might expect,” he said.
The University”s Research Seminar in Quantitative Economics, directed by economics Prof. Saul Hymans, is also predicting a quick recovery due to the government”s monetary and fiscal policies.
Monetary policy, determined by the Federal Reserve System, influences the economy by raising and lowering interest rates. Since Sept. 11, the Fed has expanded its monetary policy in order to lower borrowing costs and raise the availability of bank loans.
The RSQE predicts the Economic Growth and Tax Reconciliation Act of 2001, the $45 billion in emergency spending approved by Congress following the terrorist attacks and the additional $60 billion to $75 billion in federal spending for fiscal 2002 requested by President George W. Bush will all help stimulate the nation”s economy, saving Americans $1.3 trillion dollars in taxes during the next 10 years.
The RSQE expects the economy to slump further during the remainder of this year and to slowly grow in the second quarter of next year.
“Thus, we”re expecting the recession to last two, maybe three quarters and the economy to be pulling out of the recession well before mid-year 2002,” the RSQE reported.
Although the recession announcement comes at the beginning of the holiday shopping season, lowered consumer confidence has not visibly hurt holiday sales.
“Our stores did tremendous volume. We had a better day on Thanksgiving then the day after, actually,” said Steve VanWagoner, a spokesman for Meijer Inc., who said sales at most of the company”s 152 stores during the Thanksgiving weekend rush were higher than last year.
“I think we”re all a little bit more excited than we thought we would be by the response of shoppers,” he added. “Things have been picking up a little bit. President Bush asked people to go out and shop, and that”s what they are doing.”