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Summary

According to the National Bureau of Economic Research (NBER), the agency that dates the American business cycle, the longest economic expansion in American history ended in March 2001. The U.S. recession is now in its 24th month. The final estimate of its duration may be shorter because the NBER usually dates the end of a recession after the fact to make sure of the data. The average length of the previous 9 recessions in the post-World War II era is 11 months. Gross Domestic Product (GDP), our basic measure of economic activity, increased at a 2.9% rate in 2002 after growing by only 0.1% in 2001. GDP had contracted in the first 3 quarters of 2001. 2002 growth probably signals that the recession is over, although the NBER takes additional factors into account when it declares the end of a downturn. The unemployment rate during the 1991-2001 expansion reached a low of 3.8% in April 2000. It has risen since then to a high of 6.0% in December 2002. So far in 2003, it has come down a little and now stands at 5.8% (February). Since the recession began in March 2001, employment has fallen by around 1.9 million. During the 1991- 2001 expansion, the inflation rate increased more slowly on average than at any time since the early 1960s. At the same time, growth was stronger and the unemployment rate lower than experience would have predicted. Inflationary pressures slowed further with the recession. The exception is the acceleration in the Consumer Price Index (CPI) on a 12 month basis, but the pick up reflected the sharp increase in energy prices. Higher energy prices will be tough for consumers and businesses for awhile, but they are not expected to be permanent. Since 1995, nonfarm business productivity has increased on average by 2.6% annually. The average rate of increase since 1995 is double the average annual rate from 1973 to 1995 (2.6% versus 1.3%). The rate of increase in 2002 was particularly strong. If this rate of productivity increase is sustained, overall growth of the economy will be substantially higher and the standard of living will improve at a more rapid rate. Fiscal policy was eased during 2001 and 2002. Monetary policy has been eased over the course of 2001 and late in 2002 and appears to be geared to supporting a real GDP growth rate of 3.25% to 3.50% this year, a rate thought compatible with a modest rate of inflation. Interest rates in 2002 were lower than in 2001, particularly at the short end of the market. The 3 month Treasury bill averaged 1.64% in 2002, versus 3.48% the previous year. The yield on 10-year Treasury notes averaged 4.61% in 2002, slightly lower than in 2001 (5.02%). Recent forecasts by private sector individuals and firms for 2003 indicate expectations that GDP will grow between 2.1% and 3.1%; unemployment will range between 5.6% and 6.2%; and inflation will average between 1.9% and 2.7% (based on the consumer price index). The dollar has depreciated by around 5% on a broad trade-weighted basis (inflation-adjusted) over the past year, but remains well above its 1995 low.

Related Legislation:
• S.24
• S.9
• S.11
• S.1
• S.3
• S.1995

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