Return to recession called unlikely
By Eileen Alt Powell
Associated Press
NEW YORK — There's no doubt that U.S. economic growth slowed in the current quarter from the torrid 5.6 percent annual rate of the first quarter. But is the nation heading for a "double dip" — a fall back into a recession like last year's?
The consensus among economists is that there's plenty of momentum to keep the recovery going.
Stephen D. Slifer, chief U.S. economist at Lehman Brothers in New York, points to the strong support the nation is getting from the government in the form of lower interest rates and higher federal spending.
"In many ways, we should be amazed at how well the economy has done — and how well it is doing — given what happened on Sept. 11," he said. "The main reason is government policy."
Slifer estimated that the stimulus from the Federal Reserve's interest rate cuts last year will add about 1.5 percent to the nation's growth this year. The federal government has lowered income taxes, extended unemployment benefits and increased spending for security and defense, adding an additional 1.75 percent, he said.
After contracting in the third quarter last year, the economy began recovering. Economists predict growth will be about 2.5 percent in the March-June quarter and will rise to 3.5 percent to 4 percent in the second half.
"We had a very robust first quarter," said Sung Won Sohn, chief economist with Wells Fargo & Co. "That couldn't be sustained."
He noted that while consumer spending has slowed, manufacturers are continuing to rebuild depleted inventories and capital spending "has begun to kick in."
Sohn called the possibility of a double dip quite remote because consumer spending should hold up: "Real income is still rising. We're beginning to see more jobs created. Initial (unemployment) claims continue to fall. House prices are rising."
Mark Vitner, an economist at Wachovia Securities, also doesn't expect a return to recession.
"Look at the inventory cycle," he said. "We had a $120 billion drop in inventories in the fourth quarter. In the first quarter, factories ramped up and there was a $95 billion increase in production. But that wasn't enough to replace what we consumed. So production is still increasing."
That, he said, "means no double dip."
