Economic Activity


Real gross domestic product (GDP) grew at an annual rate of 5.8% in 2002:IQ, according to the advance estimate from the national income and product accounts released April 26. This is the fastest rate of real GDP growth since 1999:IVQ. Although spending on durable goods declined, overall consumer spending remained robust, increasing 3.5% from 2001:IVQ. In addition, consumers gave a boost to the housing sector, where residential investment grew nearly 16%. Government expenditures, concentrated primarily in national defense, also bolstered output growth. Business fixed investment and imports, in contrast, were drags on real GDP growth. However, increased imports signal stronger consumption demand.

A major reason for real GDP growth's strong showing was a substantial decline in the rate of inventory liquidation. Changes in private inventories contributed a whopping 3.1 percentage points to real GDP growth, and inventories rose $83.1 billion (1996 chained dollars) from 2001:IVQ. Although the change in total private nonfarm inventories remained negative in 2002:IQ, the pace of inventory liquidation declined substantially from the record set in 2001:IVQ. In 2002:IQ, inventory reductions moderated for both manufacturers and wholesalers; retailers actually began to accumulate inventories.

Blue Chip forecasters predict that the real GDP growth rate will slacken in the coming quarters but still remain above its long-term average for the rest of the year.

The National Bureau of Economic Research's (NBER) Business Cycle Dating Committee has not yet marked the end of the latest recession, In light of recent data, though, many analysts believe the recession may have ended as early as last December.

According to the NBER, the four most important monthly indicators of economic activity are employment, industrial production, real manufacturing and trade sales, and real personal income less transfers. The charts show recent movement in economic activity (green lines) compared to the average movement in activity over the past six recessions (red lines). The average-movement series are superimposed, so that the beginning of a recession corresponds to March 2001 (the start of the current recession).

The NBER considers employment to be the broadest and most reliable indicator. Nonfarm payroll employment peaked in March 2001 but appears to have bottomed out recently It posted an increase in March 2002, the first in eight months, Industrial production rose for a third consecutive month in March, marking its largest gain since May 2000. …

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