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Is U.S. already in recession? Not yet

An AP News Analysis

Posted: Sunday, February 18, 2001

WASHINGTON -- President Bush is walking a careful line when he speaks of ''economic pain on the horizon.'' He cannot afford to risk undermining consumer confidence by sounding too bleak. Nor can he be seen as playing the recession card to help build support for his $1.6 trillion tax cut.

No president wants a recession on his watch. Or be accused of causing one to happen.

But there is no denying that the current slowdown has increased support in Congress for a sizable tax cut, a central part of Bush's agenda.

While Democrats want to resize and reshape the Bush tax cut to suit their own constituencies and political needs, there now is wide bipartisan support for some sort of broad tax relief in this session of Congress. That was not the case just a few months ago.

''I am concerned about the economy,'' Bush told reporters aboard Air Force One last week. A government report showing a January uptick in retail sales, he said, was just ''one good statistic amongst a sea of some pretty dismal statistics.''

Evidence of a downturn is accumulating. The stock market has been wobbling lower. Manufacturing is down. Layoffs are increasing. Many high-tech ''new economy'' industries have been flattened. Natural gas and other energy prices are soaring. California is struggling with an electricity crisis that could spread.

Economists disagree on whether most of the trouble lies ahead -- or behind.

The classic definition of a recession -- two quarters, or six months, of negative growth -- does not always seem relevant to what is going on right now. When a recession begins and ends is hard to pinpoint -- until afterward.

Bill Clinton hammered Bush's father on the economy throughout 1992. When the elder Bush opened his campaign in New Hampshire, he conceded the economy was in ''free fall'' there, and promised a program to spur growth nationwide.

However, it was later established that the recession actually had ended in 1991 and the economy was in recovery -- albeit a slow one -- throughout the 1992 campaign season.

The following eight years, during Clinton's two presidential terms, were marked by remarkable and steady growth, until the slowdown began in late 2000.

Perhaps partly to inoculate himself against being blamed for the next recession, Bush began issuing economic storm warnings from his ranch in Texas as early as November, while the election results were still in dispute in Florida.

Is there a chance the economy has already slipped into a recession?

Probably not technically, many economists agree.

Last month, after reports of an anemic 1.4 percent annual growth rate in the final three months of 2000, Federal Reserve Chairman Alan Greenspan declared the economy was ''very close to zero.''

He was slightly more upbeat in Senate testimony last week. But exhibiting the traditional aversion of economic policy-makers to using the ''R'' word, Greenspan added: ''For the period ahead, downside risks predominate.''

Then Greenspan was asked directly: Is the United States now in a recession? ''At the moment, we are not,'' he replied.

Bush deflects the ''recession'' question by saying, ''I strongly believe the combination of monetary policy and fiscal policy will ease whatever economic pain is on the horizon.''

Monetary policy is longhand for Fed interest rate cuts such as the two half-percentage-point ones Greenspan delivered last month, with the prospect of more to come.

Fiscal policy to Bush means a tax cut -- even though many economists, including Greenspan, have suggested it might come too late to help in the current downturn.

Lawrence Chimerine, president of Radnor Consulting, an economics firm in Philadelphia, said the economy has been in distress since November despite a possible slight improvement in January. ''We may or may not be in a recession yet. But if not, we're real close,'' he said.

Bush has ''got to be very careful'' not to make missteps on the economy, Chimerine said. ''Despite the fact that he'll try to blame it on Clinton, people ultimately will start to blame a recession on his administration. A recession will erode the surplus and divert attention away from other things.''

Cynthia Latta, senior economist at Standard & Poor's DRI, said, ''The risks of slipping into a recession are greater than the chances of the economy taking off again.'' Still, she said, ''I think it's quite possible that December was the low point.''

Despite the president's worries, most Americans have not yet been directly affected by the slowdown, Latta said. ''Most people are concerned about whether they have a job. And most people still do have jobs.''

Tom Raum has covered Washington for The Associated Press since 1973, including five presidencies.



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