Recession on the Way — But a “Growth” Recession or a “Real” One?

Chart of the Week for February 2-8, 2001

The U.S. Gross Domestic Product (GDP), the broadest measure of economic activity, grew at an annualized 1.4% rate in the fourth quarter of 2000, the slowest quarterly reading in more than five years. This is evidence that the economy has indeed slowed. The drop in the nation’s GDP followed the release of an earlier report showing that consumer confidence is at a four-year low.

As had been expected, even before these reports of slowing activity, the Fed cut the Fed funds rate— the rate that banks charge one another for overnight loans— by half-percentage point. This is the second cut in less than a month, bringing the rate to 5.5%.

In other news out last week, the unemployment rate rose 0.2% to annual rate of 4.2% in January, another sign that the economy has slowed in recent months. Durable goods orders (minus transportation) fell to (1.4)% during the same period.

These reports and many others have led some analysts to contend that a recession may be on the way. The question is: should a recession occur in the coming months, what kind of recession would it be, a “real” recession or a “growth” recession?

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