Outlook for 2002.

• Author: Davidson, Lawrence S.
• Position: United States economy - Brief Article

The year 2001 was supposed to be the 10th year of the long economic expansion that began in the second quarter of 1992. Instead, it will be recorded as part of the 2001-2002 recession. This is the third consecutive decade that started in recession--the 1980s opened with two recessions (two quarters in 1980 and five quarters spanning 1981 and 1982) and the 1990s began with a recession covering three quarters of 1990 and 1991. The U.S. economy doesn't seem to start decades well, but it clearly recovered each time and did very well through much of the 1980s and 1990s.

Not all recessions are alike, however. Between 1979 and 1982, the unemployment rate rose from 5.8 percent to almost 9.7 percent. In December of 1982 it was nearly 11 percent. It wasn't until 1988 that the rate for the year had fallen back to below 5.8 percent. Contrast that performance with the unemployment rate in the 1990s. From 1989 to 1991 the unemployment rate rose from 5.3 percent to 6.8 percent. The rate rose again in 1992, but averaged 5.4 percent by 1996. Clearly, in terms of unemployment, the short recession of 1990-1991 had a much less pronounced and briefer impact.

We believe the current recession will be more like the one in the 1990s. It will have started in mid-2001 and should be over by early to mid 2002. While two or more quarters of that time period will register a contraction in GDP, each year will show a year-over-year positive rate of growth, in the neighborhood of 1 percent. The unemployment rate should rise from a low of 3.9 percent in 2000 to a peak of about 6.4 percent in 2002. Within two to four years, the rate should be back to around 4 percent.

It is debatable whether or not we would have entered a recession in 2001 had it not been for the attack on the United States on September 11th. The economy had already been slowing and GDP growth was barely on the positive side during the first two quarters of the year. The unemployment rate had risen from 3.9 percent in September of 2000 to 4.9 percent in August of 2001. The Federal Reserve began aggressively lowering interest...