Flooring News and Information

Washington, DC, Nov. 27—The U.S. is officially in its first recession in a decade, but many economists believe the downturn will be short and mild.They are quick to add that this forecast hangs on a big unknown—whether there will be more terrorist attacks.

“We are keeping our fingers crossed. We think it is going to be a mild recession,” said David Wyss, chief economist at Standard & Poor's in New York. “But that assumes nothing else goes wrong, and there is a lot that could go wrong.”

Analysts agree it would be a different story if terrorists were to make another successful attack.

The National Bureau of Economic Research, the group that determines when recessions begin and end, officially declared that a recession began back in March. The panel of six academic economists said that the country, which has been enduring slow growth for more than a year, might have been able to avoid a full blown recession if the terrorist attacks had not occurred.

The Bush administration used the NBER's declaration to turn up the pressure on Senate Democrats to compromise and pass an economic stimulus plan.

“The American people don't need a bunch of academics to tell them times are tough,” said Commerce secretary Don Evans. “They are living with this downturn every day. With the Christmas season upon us, the leadership of the United States Senate needs to act.”

President Bush urged the Senate to act quickly so he could sign a bill into law before Christmas. But Senate Majority Leader Tom Daschle said it was the Republicans who were using obstructionist tactics by refusing to compromise on the outlines of a stimulus bill. The Democrats are seeking more spending for low-income Americans, while Republicans are pushing for a package with a large dose of tax relief for corporations.

Many economists believe there will be a compromise on a stimulus bill of around $100 billion. They say that amount—combined with the large individual tax cuts approved last spring and aggressive credit easing by the Federal Reserve—will guarantee an economic rebound by midyear.

Gerald Cohen, an economist at Merrill Lynch in New York, said he believes the current downturn will end by March and be followed by an economic boom in the last six months of next year, “Massive monetary and fiscal stimulus should lead to 5% growth in the second half of 2002.”

A March end to the recession would mean the current downturn will last 12 months, close to the 11 month average for the ten previous recessions since World War II.

Wyss also said he was looking for a mild recession. He predicted the current downturn would reduce the country's total output by 1%, less than the 2.5% average loss in gross domestic product for the ten previous recessions.

He forecast that the unemployment rate would top out at 6.5%, better than the 7.8% peak during the country's last downturn, which lasted from July 1990 to March 1991.

The unemployment rate dropped to a 30 year low of 3.9% last year as the country enjoyed the longest stretch of prosperity on record. The decision by NBER to date March as the beginning of the recession meant that the expansion ended in the month it celebrated its 10th birthday.

The previous record holder was the 1961-69 expansion, which lasted for eight years and ten months.

In June 1999 the Federal Reserve began raising interest rates out of concern that the long economic boom was threatening to unleash higher inflation. But with mounting signs that the economy was threatening to stall out, the Fed reversed course last January.

With a recession officially declared, analysts point to a number of signs that recovery should be around the corner, including a big jump in retail sales in October and a rebounding stock market.

Asha Bangalore, an economist at Northern Trust of Chicago, said these and other indicators were pointing to a recovery in early 2002.