Economy Grew Unexpectedly in 4th Quarter

Reuters ^ | January 30, 2002 | Reuters

[Wyatt's Torch]

Wednesday January 30 8:36 AM ET
Economy Grew Unexpectedly in 4th Quarter

WASHINGTON (Reuters) - The recession-hit U.S. economy expanded slightly in the fourth quarter of 2001, the government said on Wednesday in a report that could add to beliefs the United States is turning the corner to recovery.

Gross domestic product, the broadest gauge of the economy's health, increased 0.2 percent in the final three months of last year, the Commerce Department (news - web sites) said. That defied predictions from private economists that GDP (news - web sites) would shrink by 1 percent.

Even though the economy has been in recession since March, the downturn has been unusually mild by historical standards. The only negative quarter for GDP occurred in the third quarter, when it contracted 1.3 percent.

A jump in government spending and a rush by consumers to take advantage of zero-percent financing for purchases of new cars powered the fourth quarter GDP. Amid the strong consumer spending, companies ran through a whopping $120.6 billion worth of inventories, the largest drop on record.

[Wyatt's Torch]

This will be revised downward but shows that consumer spending is driving the boat while business capital spending is the engine. What happens when the money runs out?

[CPT Clay]

"Bush" recession is over!!!!!Look out in Nov.

[Rain-maker]

Thanks to GW tax rebates...Go BUSH!

[Wyatt's Torch]

Thanks to GW tax rebates...Go BUSH!

Surely you jest? If serious, what happens this quarter now that the money is gone?

[Dukie]

I heard David Gergen on NPR say that he is aware of about a dozen more comanies with "accounting problems". What is the liklihood of even further corporate belt tightening to legitimately shore up financial statements ? IMHO, another big fall of the market, precipitated by concerns of financial statement credibility, will really cause consumers to cease spending.

[Seydlitz]

What money is gone? If businesses liquidated $120B in inventory, that gives them a lot of money to spend on expansion. Throw in the slowly strengthening capital markets, and things don't look too bad (unless you're Tom Daschle).

[Wyatt's Torch]

Couple of things: 1) I was referring to the consumer spending numbers. Sooner or later the consumers are going to stop spending. They have been kept afloat by the enormous sales and great financing deals. Which brings me to number 2) Yes, they ran through a lot of inventory...but that is just the balance sheet cost. Do we know anything about the revenue they received in exchange for the $120B? With the huge sales and 0% financing, revenue will decrease or not increase enough to cover the costs. These are just the outward signs of the 5 year deflation we have been experiencing.

Daschle is correct to be gloomy...he just has no idea the real reason why. Unfortunately since W has not one true supply side economist on his team, neither does he.

[Fredgoblu]

Even though the economy has been in recession since March, the downturn has been unusually mild by historical standards. The only negative quarter for GDP occurred in the third quarter, when it contracted 1.3 percent.

Two questions / comments for the economists in the group...

1. If memory serves me right, during Bush-the-father's term, we learned that the strict definition of "recession" was two consecutive quarters of negative GDP growth. Am I nuts?

If this is the case, and the country only saw a decline during the third quarter, with growth in both the second and fourth quarters...was there really a recession?

2. If the economy has "been in recession since March", why didn't the second quarter show a negative GDP growth? It seems kind of odd that the economy could have expanded during the first quarter of the so-called recession.

[weikel]

I talked with my father last night before the State of the Union he said the recession was over.

[Wyatt's Torch]

you are exactly right in terms of technical definitions. In reality, the business economy has been in recession for over a year (Q4 2000 is when it began). The consumer side was keeping it above the levels of a technical recession. BTW, technically, a depression is when you have a recession and deflation.

[Wyatt's Torch]

Great! Who's your father?

[winallcosts]

cool--no economic stimulus package needed!

[weikel]

Small buisness owner( don't like revealing too many personal details online). The recession would have lasted longer if Bush didn't cut taxes.

[Osinski]

Uhh...did I hear that ToysRUs filed for bankruptcy?

[Wyatt's Torch]

I hope he is correct though I fear he is wrong. Too many indicators going the wrong way. Commodities prices for one.

No such thing as a bad tax cut but the "rebate" did nothing to stimulate long term capital formation which is the driver of economic growth. Need to eliminate capital gains taxes in order to accomplish that.

[weikel]

I would prefer all entitlement be abolished along with the income and capital gains tax a national sales tax should then be enough to sustain the military and intelligence services.

[weikel]

How has the dollar been doing on the international exchange.

[Wyatt's Torch]

That's some big thinking and I would completely agree. Back to the days of providing only the services enumerated in the Constitution.

FReegards!

[Seydlitz]

Consumers have not been kept afloat only by great financing deals. The money supply in this country has been growing at an accelerated rate (long over due after Greenspan's 2000-01 deflation). Sooner or later, via jobs or refinancings, that cash makes its way into people's pockets. That growth in money supply is both encouraging consumer spending, as well as making capital available for business growth.

You are correct about the inventory liquidation as a balance sheet item, as opposed to actual cash flow. However, in a deflationary environment such as the one we've been in, cash is king. Getting cash for the sunk inventory costs enable businesses to move forward.

Remember, when Democrats fear an economic downturn, that is a clear sign of recovery.

[weikel]

Most true conservatives( im almost a libertarian but force needs to be initiated sometimes in the interest of security) support that. What has happened to commodity prices?