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Mix-Ansicht- A mixed recession, a mixed recovery - Cosa, 31.05.2002, 10:14
A mixed recession, a mixed recovery
<font size="4">A mixed recession, a mixed recovery.</font>
By Scott Brown from Raymond James & Associates
05-31-2002
The 2001 recession was typical in some ways (a correction to excessive business investment) and unusual in others (relative strength in consumer spending and housing). The recovery has been equally mixed.
Business Sales - A Mixed Bag.
The real business sales figure (manufacturing shipments plus wholesale and retail sales, adjusted for inflation) is one of four components of the Conference Board's Coincident Economic Index and a key element in the National Bureau of Economic Research's determination of business cycle peaks and troughs. Real business sales fell in February and March, but the underlying trend appears higher.
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Monthly manufacturing figures are notoriously volatile, but the underlying trend appears to be relatively flat.There may have been a"recovery" from post-9/11 weakness, helped by mild weather, in the early part of the year. Still, we haven't seen a sharp ramp-up in production or new orders. Inventories were still being pared in April. Manufacturing data seem to be reflecting more substantial structural changes going on in the economy (as opposed to a garden variety cyclical slump).
Wholesale trade activity showed improvement in the first quarter. Wholesale sales had slumped going into the recession and trended somewhat higher through the end of the year - that is, if you adjust for inflation. Nominal sales slumped throughout 2001, though part of that weakness was due to lower energy prices.
Retail sales growth remained strong in the recession, a contrast to the typical pattern. Sales slumped sharply in September, an immediate reaction to the terrorist attack, but surged back in October, as motor vehicle sales reached a record level. The impact of zero-percent financing incentives failed to reverse much at all in the months that followed. Retail sales continued to trend higher through April. May sales growth figures are expected to be more moderate (but still positive).
Manufacturing and wholesale trade data suggest that the worst is over, but have not yet signaled a return to sustainable growth. Retail sales, on the other hand, are likely to rise at a more moderate pace in the remainder of the year. Growth in wages and salaries slowed sharply over the last year. The new 10% tax bracket and larger tax refunds boosted disposable income through the spring, which helped support consumer spending growth. However, most special factors have faded. A rapid pace of mortgage refinancing could help propel consumer spending (especially on autos) in the near term, but the sluggish growth in wages and salaries is likely to be a dominant factor in restraining consumer spending growth.
Productivity And Profits.
Aggressive cost-cutting has been a central element of recent economic activity. Cost-containment has always been an important object for businesses. However, firms have stepped up their efforts over the last year and a half. Layoffs have continued at an elevated level, below the pace of last fall, but well above the prerecessionary rate. Firms are asking their workers to do more. As a consequence, labor productivity has jumped. The increased output per worker has helped improve profit margins, but a large portion of these cost-cutting productivity gains are likely to be transitory. Hence, as a whole, the economy is not yet on a sustainable growth path, but we are moving toward such a path.
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