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The Honolulu Advertiser
Posted on: Wednesday, April 24, 2002

Recession looking worse

By Jeannine Aversa
Associated Press

WASHINGTON — Last year's recession, currently viewed as the mildest in U.S. history, may not have been so mild after all, some private economists said after looking at new government data yesterday.

A state-by-state report released by the Commerce Department showed that Americans' incomes for all of 2001 were considerably smaller than the government had previously estimated in another report on the gross domestic product, the broadest measure of the economy's health.

The department said per-capita income grew 2.5 percent in Hawai'i last year, placing it in about the middle of states' results across the nation. New Mexico, Wyoming, Oklahoma and Alaska led the nation in per-capita personal income growth — with increases ranging from 4.6 to 5.6 percent.

States with the slowest growth were Washington, Nevada, Oregon, South Dakota and Michigan — with increases ranging from 1.1 to 1.4 percent.

Some private economists believe the lower estimate of Americans' personal incomes — a component in calculating the GDP — will result in a significant downward revision to GDP for all of 2001. Last year, the economy, already slumping when it was jolted by the Sept. 11 attacks, grew by just 1.2 percent, a big slowdown from 4.1 percent increases posted in 1999 and 2000.

Each year, the government revises estimates of GDP for certain periods based on more complete data. It will release annual benchmark revisions for 2001, along with 1999 and 2000, on July 31.

Yesterday's report showed that Americans' incomes grew 3.7 percent in 2001, while the most recent GDP report released in March said incomes rose by 4.9 percent. The difference of 1.2 percentage points works out to $90 billion.

"It sounds to me that they are going to have to revise away a lot of last year's growth, and it will turn out that the recession was indeed a recession and was more severe than previously thought," said Mark Zandi, chief economist at Economy.com.

Even if that turns out to be the case, private economists said it doesn't change the widespread belief that the economy is now recovering from a recession that began in March 2001.

Steve Landefeld, director of the Commerce Department's Bureau of Economic Analysis, which produces the GDP and personal income reports, would not comment on potential revisions.

But he did say the initial estimates in the GDP reports included assumptions that the government makes about wages and salaries that often get revised once actual income statistics are available.

Sung Won Sohn, Wells Fargo's chief economist, said he didn't believe the lower personal income figures were significant.

"I don't think it will change the conclusion that we had the mildest recession during the postwar period," said Sohn.

Given the lower personal income figures, Zandi said it was possible that GDP in the second quarter of last year, which grew at an anemic rate of 0.3 percent, could be revised into negative territory. That would mean the economy shrank during the period.

In the third quarter of 2001, the economy did shrink at a rate of 1.3 percent, reflecting the blow of the terror attacks.

Under current estimates, however, the third quarter was the only negative quarter for GDP last year.