The U.S. economy grew at the slowest rate in eight years during the second quarter of 2001, according to the Commerce Department’s Bureau of Economic Analysis data released Aug. 29. The 0.2 percent growth rate in gross domestic product over the quarter was the smallest gain since the first quarter of 1993, when the economy was recovering from the last recession. The GDP growth rate was 1.3 percent for the first quarter. Commerce had estimated a GDP rate of 0.7 percent in the second quarter.
The gross domestic product is the output of goods and services produced by labor and property located in the United States.
That news was followed the next day by a selloff in the stock market as the Dow Jones Industrial Average fell below 10,000 for the first time in four months to close down 171.32 at 9,919.58, a 1.7 percent loss. According to the Associated Press, investors are staying away from stocks when they feel prospects for a recovery are bleak.
“We’ve broken through some important psychological levels on the Dow by going below 10,000, and tech stocks are getting whacked,” Bryan Piskorowski, market commentator at Prudential Securities, told AP. “There’s a lot of feeling of doom and gloom out there, and the rank-and-file investor is on the sidelines waiting it out.”
The BEA also reported that corporate profits declined by $28.5 billion, or 2 percent, in the second quarter after declining $57.8 billion, or 7.8 percent, in the first quarter.
But not all the economic news in recent weeks has been bad. Consumer spending rose at an annual rate of 2.5 percent in the second quarter. Nearly two-thirds of the nation’s total economic activity results from consumers. As long as they keep their wallets out, the economy should avoid a recession, analysts said. But personal consumption grew at only 0.1 percent in July, the smallest increase in nine months, and significantly lower than the 0.5 percent growth rate in June.
A slowing economy depressed turnout at many industry events, including the International Trucking Show in Las Vegas, which was off by 20 percent or more in both attendance and exhibits.
Construction has stayed strong in recent months, with a 5.8 percent increase in the second quarter. Falling interest rates have contributed to that sector’s growth.
And inflation, long the bane of economy watchers, increased only 1.6 percent in the second quarter after a 3.2 percent increase in the first quarter. According to the Bureau of Labor Statistics, the consumer price index fell 0.3 percent in July. The 12-month average now stands at 2.7 percent. The energy index, which showed double-digit increases in 1999 and 2000, grew at only 0.7 percent the first seven months of this year and declined by 5.6 percent in July, the largest drop in that index since April 1986. The index for petroleum-based energy declined 10.3 percent in July, reflecting easing fuel prices.
Personal income and disposable personal income – income left after tax and other payments – both increased in July, the last month for which figures were available. Personal income increased 0.5 percent in July and disposable personal income was up 1.7 percent in the month.
According to the BEA, the July increase in disposable income was due to a number of factors, including tax refunds, which began arriving in taxpayers’ mailboxes in July. The Economic Growth and Tax Relief Reconciliation Act of 2001, the bill authorizing those checks, also reduced some tax rates beginning in July. Plus there were some one-time benefit corrections for Social Security and supplemental Social Security recipients. Without these factors, personal disposable income increased by only 0.3 percent in July.
Personal savings as a percentage of disposable income was also up in July to 2.5 percent. The personal savings rate in June was 1 percent of disposable personal income.
Unemployment remained steady at 4.5 percent in July, according to the BLS. But employment continued to decline. BLS data shows payroll employment down by 42,000 during the month. The most recent low for the unemployment rate was 3.9 percent last October. Since early this year, the rate has hovered around the 4.5 percent mark.