Recovery displaces recession - very slowly
Fed Chairman Greenspan cautiously upbeat that slump is at an end, but unemployment may linger for a while yet.
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Finally, evidence is beginning to pile up on the side of an economic recovery that may already be under way.
General Motors is boosting car production. Consumers bought homes in January at a record pace. An index of so-called leading economic indicators - designed to gauge activity in the coming months - has risen for four months in a row.
The big question now is the shape of the recovery. After one of the shortest and mildest slumps on record, the ensuing rebound may also be unusually weak. Some of the very forces that made the recession shallow threaten to dampen growth.
"An array of influences unique to this business cycle ... seems likely to moderate the speed of the anticipated recovery," Federal Reserve Chairman Alan Greenspan said in his semiannual report to Congress yesterday, even as he noted that a recovery was "beginning to get under way."
Consumers, for example, spent with surprising freedom throughout the downturn that officially began last March. But that very fact leaves them less leeway to plow more money into spending now. Mr. Greenspan, in his prepared remarks, called it a "lack of pent-up demand."
Rising unemployment doesn't help. Even as Americans have been reading headlines about the recession winding down, the consumer confidence index released Tuesday by the New York-based Conference Board fell to 94.1 from 97.8 in January.
Businesses, for their part, may be less prone to use low interest rates to finance expansion than in past recoveries. Profits plunged more sharply than in any recession since World War II - and until those earnings rebound, corporate America is likely to be in a mode of fiscal discipline.
All this doesn't mean that the prospects for the economy aren't brightening.
"Odds are pretty good we have seen the [recession's] trough," says Jeffrey Frankel, a member of the National Bureau of Economic Research group that dates turning points in the business cycle. "But it is far from certain."
The Commerce Department reported yesterday that America's beleaguered factories enjoyed a larger-than-expected rise in orders for big-ticket goods: 2.6 percent in January. And tomorrow, a government report is likely to indicate substantial growth in the economy in the final quarter of 2001.
If recovery began in November, the earliest date in speculation, the recession will have lasted nine months and be among the shortest in history. Others see a more typical length of 11 months.
"The recuperative powers of the US economy ... have been remarkable," said Greenspan, in a report that mentioned blows such as the Sept. 11 attacks and the collapse of energy giant Enron Corp.
In fact, at a time when Enron's failure is prompting calls for fresh regulation, Greenspan took pains to argue that deregulation of various industries in recent years has made the economy more flexible.
For all its resilience, however, the economy still lacks vigor. Greenspan cited Fed forecasts of economic growth in the 2.5 to 3 percent range this year. That's well below the 6.2 percent growth typical in the first year of an economic upturn.
That means the unemployment rate may continue climbing from January's 5.6 percent rate until summer or even later. After the previous recession in 1990-91, people began talking of a "jobless recovery." That damaged the election prospects of President George H. W. Bush in 1992.
The current Bush administration argues for further tax cuts to assure a vigorous upturn. But at a time when the federal budget surplus is fast disappearing, that proposal faces hot debate.
Last year's tax cuts, along with repeated Federal Reserve moves to lower interest rates, helped smooth out the economic slump. Seeing signs of a slowdown, the Fed started lowering interest rates early in January of last year, even before the recession began. Usually the Fed has acted only after a slump began and was obvious.
Congress, too, acted at light speed by historical standards. It cut taxes fast enough that income-tax rebates started reaching taxpayers last summer.