February 22, 2002
End of Recession Is Seen, but Strength of Recovery Is Unclear
By RICHARD W. STEVENSON
WASHINGTON, Feb. 21 ? Economists and government officials said today that the recession had almost certainly come to an end but that it remained unclear how strong and sustained the recovery would be.
White House officials said the economy was growing at a modest but accelerating rate and again credited the tax cut President Bush signed into law last year for minimizing the depth and duration of the downturn.
But administration officials reiterated their call for an immediate package of new and accelerated tax cuts, saying the economy still faced problems, including economic weakness abroad, weak corporate profits and the possibility of a recovery, similar to the one after the last recession, in 1990-91, in which the unemployment rate remained high for months or years.
"We've seen jobless recoveries before," said Commerce Secretary Donald L. Evans. "We saw one in the early 90's, as a matter of fact. So that's why the president and the administration continue to be very focused on the importance of a stimulus package."
Their comments suggested that the administration was trying to walk a line between optimism about the economy and continuing to sell a tax-cutting agenda that it had linked to fighting the recession.
The package of tax cuts and other measures has been stalled in Congress for months, and administration officials made no new proposals today to break the partisan deadlock.
But they signaled that they remained solidly behind the efforts of Republicans in the House to keep the package alive in the face of opposition from the Democratic-led Senate.
They also expressed support for the decision by the House Republican leadership to continue to hold up what has been a routine action by government during a recession ? extending unemployment benefits beyond the 26-week limit imposed by most states ? until Democrats agreed to at least some of the tax cuts backed by the White House.
Asked whether the tax cuts and extension of unemployment insurance should be linked in a legislative package, Mr. Bush's chief economic adviser, Lawrence B. Lindsey, told reporters, "The two should be, yes."
Democrats said unemployment benefits were expiring for 11,000 people each day, and the administration and Republicans on Capitol Hill were holding them hostage to their push for tax cuts. With Republicans having blocked a compromise plan offered by Senator Tom Daschle, Democrat of South Dakota, the majority leader, Democrats said the onus was on Mr. Bush and his party to resolve the standoff.
The latest tussle over economic policy occurred as statistics provided more evidence that the economy was on the upswing.
The government reported today that the trade deficit in December fell unexpectedly to $25.3 billion from $28.5 billion a month earlier, a development that economists said meant the economy probably grew at a 1 percent annual rate in the fourth quarter rather than at the initial estimate of 0.2 percent.
A growth rate of 1 percent in the fourth quarter would be near-certain evidence that the recession was over and that it was short and shallow. The recession began last March, and now appears to have encompassed only one full quarter of negative growth ? last summer, when the economy contracted at a 1.3 percent annual rate.
The recession "probably is over," said William Dudley, chief economist at the investment firm Goldman Sachs (news/quote). "We're in recovery," Mr. Dudley said, "but we haven't seen all the data yet to confirm that."
The quasi-official arbiter of business cycles, the National Bureau of Economic Research, a private academic group, has not made a judgment about whether the recession has ended. Although recessions are popularly defined as two quarters or more of negative growth, the group uses a more flexible definition that tries to pinpoint peaks and troughs in economic activity.
Many economists say there is little doubt that the recession is either over or in its last stages, a view the administration endorsed today.
R. Glenn Hubbard, chairman of the White House's Council of Economic Advisers, said that private- sector forecasts of a 1.5 percent annual growth rate in the first quarter were reasonable and that the latest job-loss statistics were "consistent with recovery being under way."
Mr. Lindsey said the expansion "is here now, and the first quarter is likely to be a fairly good one as these things go." Mr. Evans said there were "lots of signs" that the economy was "beginning to begin its recovery."
But, speaking at a news conference arranged by the American Enterprise Institute, a conservative research organization, Mr. Evans, Mr. Lindsey and Mr. Hubbard cautioned that a smooth and robust recovery could not be taken for granted.
Mr. Evans said, "The business leaders that I talk to ? small, medium and large ? are still saying that they don't feel the strength of the recovery yet."
Mr. Hubbard said "there are important downside risks remaining" that justified the administration's continued support for an economic recovery package.
The package passed by the House would accelerate some of the individual income tax rate cuts in last year's tax bill, provide tax incentives to businesses to invest in new equipment and reduce the corporate alternative minimum tax. It would also provide a one-time payment of up to $300 per person to many low-income workers and extend unemployment benefits by 13 weeks.
Administration officials said the package was particularly needed to help ensure a rebound in capital spending by businesses.
Unlike most recessions, which are characterized as much by downturns in consumer spending as in business activity, this one was marked by relative strength in consumer spending. But capital spending by companies on equipment like computers, software and telecommunications technology plummeted.
As the recovery unfolds, the economy is not likely to get much of a lift from the consumer because consumer spending never weakened much, economists said. So the big question is how strongly capital spending will bounce back.
A survey released by the National Association of Manufacturers found that 45 percent of its members expected to increase their capital spending in the first half of this year by as much as 5 percent, while 38 percent said they anticipated a continued decline in capital spending.
The outlook for unemployment ? and therefore for the political implications of the economy ? remains muddled. The unemployment rate has historically continued to rise for some months after a recession; after the last recession ended in March 1991, unemployment drifted up for 15 months, to 7.8 percent from 6.8 percent, hurting the re-election prospects in 1992 of President Bush's father. The rate is now 5.6 percent.
Some economists said the rate was likely to hit 6.5 percent before falling. Others said it would not rise much more. "Labor market data is sending a clear message: the unemployment rate is likely to peak at 6 percent or less," said a report today from L. Douglas Lee of Economics from Washington, a consulting firm.
AI
