The National Bureau of Economic Research made it official this past Nov. 26: The nation’s economy was in recession and had been since March 2001. As the year ended, data from the Bureau of Economic Analysis showed a 1.1-percent drop in gross domestic product for third-quarter 2001 with further shrinkage expected for fourth-quarter 2001 and the first two quarters of this year. The drop in the third quarter was considered more severe than the 0.4-percent decrease in growth estimated last fall. From 1998 through 2000, the GDP had grown at a rate of about 4 percent per year.
According to NBER, a non-partisan and non-profit research group of economists, the U.S. economy hit “a peak in business activity during March 2001.” NBER defines a peak as a point that “marks the end of an expansion and the beginning of a recession.” The research group says its data shows the expansion that began in March 1991 lasted exactly 10 years, and was the longest expansion since NBER began tracking the economy. These figures are based on monthly economic indicators, unlike BEA’s GDP reports, which are based on quarterly data.
NBER looks primarily at four monthly indicators: employment, personal income, manufacturing sales volume and industrial production. A key indicator is employment, NBER says, with a recession displaying a “substantial decline in output and employment.”
The NBER data shows that industrial production actually peaked in October 2000, but other sectors continued growing until March 2001, partly offsetting the job losses in the industrial sector. The 13-month decline in industrial production is the longest period of industrial decline since the Great Depression.
What does that mean for the freight outlook? “It’s cloudy,” said Bob Delaney, vice president at Cass Information Services. Cass handles the billing for more than 100,000 shipments a month, and has developed a freight index based upon its data.
“I haven’t seen it this bad since 1981, 1982,” Delaney said. “With production down for 13 straight months, that’s had an impact on freight. Manufacturing capacity is down to 74 percent. It rarely gets below 80. It’s going to be a difficult year for trucking.
“Right now, the expectation is we are not going to see a turnaround until the middle of the year.”
Delaney said freight volumes have been falling since the summer of 2000. “If you think about it, we began the decline in trucking in June 2000, so we are already on six quarters of a decline. Add the rest of this year and at least another two quarters next year and it will be almost two years of softness” in the freight market.
Many economists expect the downturn to be relatively mild, due in large part to low inventory levels. Trying to boost the economy, the Federal Reserve Board cut interest rates 10 times in 2001 and was expected to cut interest rates again Dec. 11.
The unemployment rate climbed to 5.4 percent in October 2001, with significant job losses in manufacturing, according to data from the U.S. Department of Labor’s Bureau of Labor Statistics. The jobless rate hovered around 4.5 percent for most of 2000 and the first two quarters of 2001. Inflation remained in check, with the Consumer Price Index falling 0.3 percent in October 2001 for a 12-month average increase of 2.1 percent.