WASHINGTON – The U.S. economy managed to eke out a tiny 0.3 percent growth rate in the April-June quarter, dangerously close to a recession even before the Sept. 11 terrorist attacks.
Many economists believe those attacks and the toll they have taken on consumer confidence will spell the end of the nation's longest economic expansion and push the country into its first recession since 1990-91.
The Commerce Department reported Friday that the gross domestic product — the nation's total output of goods and services — was growing at a barely discernible rate of 0.3 percent in the spring, the weakest performance in more than eight years.
GDP growth had been a weak 1.3 percent in the first quarter and it has been hovering in that range since the summer of 2000, when the economy suffered an abrupt slowdown that has already cost more than 1 million manufacturing jobs.
The new second quarter figure was slightly higher than a 0.2 percent estimate of second quarter growth made a month ago, an improvement the government said came from a slightly better trade performance.
Inflation, as measured by a price gauge tied to the GDP, rose at an annual rate of just 1.3 percent in the second quarter, the smallest increase since early 1999. This GDP price measure was up 3.2 percent in the first quarter.
If the country does enter a recession, many economists believe it will be a brief one because the Federal Reserve, which has already cut interest rates eight times, will have room to cut rates further because inflation is not a threat.
The Fed is expected to cut rates again next Tuesday when central bank policy-makers gather in Washington for a regularly scheduled meeting. The Fed cut rates between meetings on Sept. 17, a half-point reduction that failed to stem a steep drop in stock prices in the week the market re-opened following the terrorist attacks on the World Trade Center and the Pentagon.
The government said Friday that corporate profits after taxes fell in the second quarter at an annual rate of 1.7 percent following declines of 7.8 percent in the first quarter and 3.5 percent in the fourth quarter. It was the longest stretch of profit declines since the country was being buffeted by the Asian currency crisis in 1997-98.
The small amount of growth in the April-June quarter came from a 2.5 percent rise in consumer spending. Consumers, who account for two-thirds of total economic activity, have kept the GDP in positive territory over the past year even as U.S. companies, particularly in the high-tech sector, were being blungeoned by falling profits and plunging stock prices.
Since the attacks two weeks ago, a number of economic statistics have pointed to growing weakness. Consumer confidence for September took its biggest nosedive since the October 1990, when the country was preparing to go to war against Iraq over its invasion of Kuwait.
The government reported Thursday that the number of Americans filing new claims for jobless benefits shot up to a nine-year high. Federal Reserve Chairman Alan Greenspan told Congress last week in a somber assessment of current prospects that the weekly layoffs figure will be an important first indicator of where the economy is heading.
Two major economic forecasting groups — the Blue Chip Economic Indicators and the National Association for Business Economics — said in special surveys taken after Sept. 11 that an overwhelming number of its economists now believe the country is in a recession.
The Blue Chip consensus called for the GDP to shrink by 0.5 percent in the July-September quarter and decline by 0.7 percent in the final three months of this year before returning to positive territory early next year. A recession is commonly defined as two consecutive quarters of declining GDP.
Many analysts believe that the National Bureau of Economic Research, the official arbiter of recessions, will actually date a downturn as beginning in May or June of this year. Even though the GDP managed to remain in positive territory barely, separate indicators of various types of economic activity such as retail sales and personal income peaked and began to turn down during this period.