Recession's Severity Scaled Down
GDP Dropped Less Than Earlier Reported, Agency Says
By John M. Berry
Washington Post Staff Writer
Thursday, December 11, 2003; Page E03
The 2001 recession, already among the mildest in modern U.S. economic history, was even slightly shallower than earlier estimated, according to a comprehensive revision of national income and production figures released yesterday by the Commerce Department.
The drop in the nation's gross domestic product from the first quarter of 2001 to the fourth quarter, when the recession ended, was only 0.5 percent rather than 0.6 percent, according to the revisions, which are done every five years. However, the update also shows that the economy contracted slightly in the July-September period of 2000, as well as in the first three quarters of 2001.
The latest figures revised were those for the second quarter of this year. For the third quarter, the department has estimated that the economy grew at an 8.2 percent annual rate after adjustment for inflation, but it will revise that figure late this month.
The Commerce Department's Bureau of Economic Analysis, which is responsible for producing the national income and GDP numbers, altered several definitions and methodologies in an effort to track the rapid changes in the complex U.S. economy. The new figures paint much the same picture as the old ones -- for the past 10 years, the average growth rate of the economy is still 3.2 percent a year -- but several important details for the past year or two are different.
For example, U.S. corporate profits last year were $904.2 billion, nearly $120 billion higher than previously estimated. The upward revision was primarily the result of an adjustment in the treatment of stock options and when they are reported as an expense on corporate books. In the second quarter of this year, this profit measure, which is adjusted for capital consumption and inventory gains, was $1.0228 trillion on an annualized basis.
Meanwhile, personal income was revised downward for recent years and personal spending was revised upward, with the result that the share of after-tax personal income that was saved last year, 2.3 percent, was significantly less than the 3.7 percent reported earlier.
Saving was also revised downward at the national level. Last year gross national saving, which includes personal, business and government saving, as a percentage of gross national product was 14.7 percent, rather than 15 percent. And in the first half of this year, the gross saving rate was lower still, just over 13 percent.
Gross national saving is important because when gross national investment -- that's the purchase of equipment and software by businesses and governments and construction of residential and nonresidential structures -- is higher than gross savings, money has to flow into the United States to finance the difference. The shortfall in national savings is now equal to about 5 percent of the GDP.
Another interesting change involves the treatment of insurance premiums and claims. When there are disasters with large losses, such as the terrorist attacks in 2001 or hurricanes or earthquakes, the Bureau of Economic Analysis had treated the claims paid by insurance companies as an offset to premiums paid. That approach produced peculiar results that were quickly reversed in later quarters.
Now the agency has established the concept of a "normal" level of claims, so that the large swings in insurance services will be eliminated. The previous methodology involved swings so great that they even caused significant temporary blips in a key inflation index, the personal consumption price index.
As part of the revisions, the Bureau of Economic Analysis also moved the base year for its various price indexes to 2000 from 1996.
© 2003 The Washington Post Company
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