Course of the economy: recovery, yes, but 'momentum' doesn't apply
Today we are being told the economy gained ''momentum'' in second-quarter 1983, with an increase in gross national product - the output of goods and services - at an annual rate of 8.7 percent, compared with 2.6 percent in the first quarter.
The popular contention is that the accelerated rate of rise in the second quarter reflects an increased momentum that will spur the economy on to even greater gains in the months ahead.
Using a physicist's concept of gaining momentum to describe the course of the economy may sound good. Unfortunately, there is very little evidence in the past of economic recoveries gaining momentum.
The first 15 months of economic recovery in the United States, as reflected in real GNP, is characterized by alternate quarters of speedup and slowdown. Rarely have we had two consecutive quarters in which the rate of rise of GNP has accelerated.
When first-quarter GNP statistics came out, we wrote an article in the Monitor which was summarized in the headline ''Slow start, feeble recovery? Clues for '83 say otherwise.'' The article concluded, ''So don't give up on GNP just yet. Its first-quarter performance need not be taken too seriously. A year from now, we may look back and be pleasantly surprised.''
Even before the year is over, the recently released second-quarter GNP figures have changed the general attitude toward the recovery from one of caution to one of considerable optimism.
But when we wrote ''pleasantly surprised'' we were not suggesting a boom, just an ordinary average recovery, something better than the ''subdued'' recovery generally being bandied about by economists and others early in 1983, rather than anything unusual.
As for the second-quarter numbers, quarterly economic data are always playing statistical tricks on us.
If we look at monthly data of the Federal Reserve's index of industrial production, for example, we find that despite the second quarter's showing an accelerated rate of rise over the first quarter, the monthly rate of rise during the second quarter slowed significantly.
Here we go again - figures don't lie, but liars figure!
Not at all. Different figures tell different stories about different things. It behooves all of us to know what is being talked about when a statistical statement is made as to the course of the economy.
''But we don't want to be bothered by a lot of statistics. Just tell us what is happening.''
Ignore the statistics if you insist, but until you understand them you simply will not know what anyone is talking about in describing the speed with which the economic recovery is proceeding.
For those who want some greater insight into what is happening, we present the following statistics.
Industrial production for the first quarter of 1983 as a whole averaged 138.5 and exceeded the fourth quarter of 1982 average of 135.3 by 2.4 percent.
Industrial production for the second quarter of 1983 averaged 144.3 and exceeded the first-quarter average by 4.2 percent.
Was, then, the rate of rise in industrial production accelerating at the end of June? No, it was not.
The monthly rate of rise reached 2.0 percent in April, the first month of second-quarter 1983. In May, the rate of rise fell to 1.1 percent, and it remained at 1.1 percent in June. Thus during the second quarter, the monthly rate of rise in industrial production slowed significantly by the end of June, from 2.0 percent to 1.1 percent.
A 2.0 percent monthly rate is a 6.1 percent quarterly rate. A 1.1 percent monthly rate is a 3.3 percent quarterly rate. Going from 6.1 percent in April to 3.3 percent in June is markedly different from going from 2.4 percent for first-quarter 1983 to 4.2 percent for second-quarter 1983.
The economy is behaving as it usually does during periods of economic recovery. The recovery is moving in fits and starts. A recovery seldom has been, probably is not now, and seldom will be correctly described as ''gaining momentum.''
Don't be misled by the popular descriptions of the path of this economic recovery. It's a pretty average recovery thus far. We suspect it will continue to be a pretty average recovery.
Three months from now, the third-quarter GNP statistics will show an increase less than the second-quarter rise, and you will have been forewarned.
Federal Reserve Board industrial production
Monthly index Quarterly index Quarterly rise Monthly rise Oct. 135.7 Nov. 134.9 135.3 -0.6% Dec. 135.2 +0.2% Jan. 137.4 +1.6% Feb. 138.1 138.5 2.4% +0.5% March 139.9 +1.3% April 142.7 +2.0% May 144.3 144.3 4.2% +1.1% June 145.9 +1.1%