New Data Show Recession Was Longer but Shallow

The U.S. Commerce Department revised its estimates of Gross Domestic Product in 2001, revealing that last year's recession actually began in the first quarter and extended through the third quarter. A strong fourth quarter couldn't offset three consecutive quarters of negative growth, leaving the total growth rate for the U.S. economy for all of 2001 at just 0.3 percent. Those were the symptoms of recession. The cause was a steady decline in business investment throughout 2001. Consumer spending never fell in any quarter. Personal income (before and after taxes) rose during 2001, but less rapidly than previously thought. The Commerce Department revised upward the personal savings rate for 2001 to 2.3 percent. By comparison, the savings rate in the first quarter of 2002 was 3.5 percent, and estimates put the second quarter 2002 savings rate at about 4 percent.

Economists think it is unlikely that consumer spending will continue to carry the economy like it did in 2000 and 2001. A rising savings rate is already apparent, which will serve as a drag on consumer spending, barring an unexpectedly strong surge in personal incomes. The good news is that signs of a revival in business investment spending surfaced in the second quarter of this year. Spending by businesses on equipment and software rose for the first time in more than 18 months. Sung Won Sohn, chief economist at Wells Fargo, told The Washington Post that "so far, consumer spending, inventories and housing have kept the economic ship afloat. In coming months the importance of these sectors on the economy will diminish. Therefore, capital spending must materialize to pick up the slack. Fortunately, capital spending—outside of telecom, aircraft and buildings—has begun to rise already."