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Summary

The recession that began in March 2001 has not yet been declared over.1 However, it is important to recognize that U.S. real growth has been positive for 18 months (6 consecutive quarters). The economy has now exceeded its previous high at the end of the 1991 - 2001 expansion. Yet the rebound in growth has not translated into higher employment. Employment has continued to contract. The unemployment rate has remained high. Moreover, the most recent data suggests that the economy continues to go through a "rough patch". Growth remained positive in the first quarter 2003 , but subdued for the second quarter in a row. Real GDP rose by 1.6%, versus 1.4% in the fourth quarter, on an annualized quarter-quarter basis, seasonally adjusted. Employment losses picked up in the first quarter and the civilian unemployment rate stood at 5.8% in March, just below the high for this phase of the business cycle (6.0% in December 2002). Measured inflation increased in the first quarter, although its rise was concentrated in the energy component. While quarterly growth typically has its ups and downs, the recent weakness in household spending, limited pick up in business investment and continuing employment contraction has raised concerns.2 Recent data offer limited guidance because it is difficult to separate immediately arising issues from the underlying trends. Key questions to keep in mind are to what extent do recent slow growth and employment contraction reflect (1) geopolitical tensions and their effects on business and consumer sentiment; (2) continuing adjustment to imbalances in the business sector, particularly in the telecommunications industries; and/or (3) normal recovery trends in the aftermath of a recession ? Despite these concerns, most economists expect the economy to pick up throughout the year, with the second half growing at an annualized pace above 3.5%. The unemployment rate is expected to show little change for the time being until businesses are sufficiently confident of conditions ahead so that they increase hiring. Inflation is expected to slow as oil prices decelerate. Fiscal and monetary policies were eased in 2001 and 2002 and are expected to remain supportive of growth. The external deficit is large and expected to remain so.

Related Legislation:
• S.1
• S.2

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