Economy’s Pace Reduced by Half : Output: The poor quarterly figure, only 1.4%, is another piece of bad news for Bush’s reelection effort. Economists say the recovery looks much like a slump.
WASHINGTON — Economic growth slowed to a snail’s pace in the second quarter, the government said Thursday in a report that raised questions about the strength of the recovery and sent reverberations through the presidential election campaign.
In yet another dose of bad news for President Bush’s reelection effort, the Commerce Department said the economy grew at an annual rate of just 1.4% from April through June--less than half the 2.9% rate during the first three months of the year.
The second-quarter figures were slightly worse than most economists had expected, and reflected a sharp decline in consumer spending as Americans continued to react warily to mounting signs of a broad-based--and long-term--economic malaise.
Economists agreed that, although the nation has officially been out of recession all year, the economy remains mired in a mushy recovery that looks and feels very much like a slump.
The current 7.8% unemployment rate, for example, is higher than at any point in the past eight years, while the growth in the nation’s output of goods and services is stuck at a slower pace than in any other recovery since World War II. Searching for the technically correct way to describe the economy’s current state, DRI-McGraw Hill economist David Wyss observed that the United States is now in the “longest period of non-rapid growth†since that war.
“This is a recovery, but it is the slowest damn recovery that anyone can remember,†observed Barry Bosworth, an economist at the Brookings Institution in Washington.
Except for monthly unemployment figures, Thursday’s report on second-quarter growth represented one of the last major economic reports that the government will issue before the general election campaign gears up after Labor Day. For that reason, the latest data took on special political significance. President Bush and Democratic presidential nominee Bill Clinton immediately sought to spin the numbers into their contrasting campaign messages, with Bush arguing that the economy is better than it looks, and Clinton that it is worse.
“When we look at our economy, we should resist the urge to exaggerate our problems,†Bush said in a speech in Texas. “Sure, we face some stiff challenges, but let’s not forget a few facts. We’re the world’s largest economy. No other nation sells more products outside its borders--exports are tremendously high. Inflation is the lowest in two decades (1.6% in the second quarter) . . . the dream team of workers can be found right here in the United States of America.â€
Clinton, on the other hand, chided Bush during a Little Rock, Ark., press conference, saying that “today’s economic statistics confirm what the American people have been trying to tell the President for some time now: We are in a crisis, an economic crisis, and it’s far more painful than this Administration has ever understood. Maybe today’s statistics will be a wake-up call for the Administration that still is offering alibis, not action, while people are hurting.â€
The Democrats could barely contain their glee over the bad news. “We have had three times as many personal bankruptcies as jobs created during George Bush’s presidency, so we don’t have to spend a lot of time convincing voters that George Bush’s handling of the economy stinks,†said Dan Carroll, research director for the Democratic National Committee.
Between January, 1989, and March, 1992, the nation had 2,411,271 personal bankruptcies, according to the Administration Office of the U.S. Bankruptcy Court. Between January, 1989, and June, 1992, the United States had a net increase of 841,000 jobs, according to the Bureau of Labor Statistics.
Treasury Secretary Nicholas F. Brady, meeting with reporters Thursday, argued that there was still plenty of time before November for the economy and the President to regain their footing. “There is more time between now and the election than there was in Ross Perot’s entire campaign,†Brady said.
Privately, however, other senior Administration officials said the White House, alarmed by the weak economic data, is now scrambling to develop a new economic plan for the fall campaign to counter the criticism that the President has failed to tell voters how he will fix the economy in his second term. White House Budget Director Richard G. Darman is heading the new effort, a Bush campaign aide said.
One senior White House official, who asked not to be named, said that “a lot of people in the Administration are talking about the need for some new things and modifying some old proposals,†but stressed that there is little consensus yet among the President’s advisers on the matter. Administration and campaign officials have not agreed on the new agenda’s contents.
Because the Senate Finance Committee on Wednesday approved six of the seven key economic initiatives proposed by Bush in January, Administration officials acknowledged that it will become increasingly difficult for the President to continue criticizing Congress for bottling up his growth package.
In fact, Bush’s criticism of Congress on economic matters during his campaign swing through Texas contrasted sharply with predictions by senior aides in Washington that the Administration expects to support the bipartisan tax package that is emerging in Congress.
Although the tax bill does not include the President’s favorite economic proposal--a capital gains tax cut--it does contain an array of provisions long sought by the Administration: tax breaks for corporations, real estate developers, first-time home buyers and upper-income savers, all at an estimated cost of $21.4 billion over five years.
With congressional action proceeding rapidly on those measures, the Administration must move on to a new plan, said one Administration official who supports the idea of a new economic package.
“We have got to give people some new ideas, some explanation of what George Bush wants to do,†he said.
Economists, clearing away the political smoke over Thursday’s figures, predicted that there would be no major economic turnaround for the remainder of 1992. Hopes for a strong recovery were being dashed, they said, by pessimistic consumers who are paring their spending, as well as by a sharp drop in exports, which fell in the second quarter at a 3.8% rate while imports increased at a 6.3% rate.
Economists also noted that many of the same factors that restrained growth for the past year--the reduction in defense spending, the shakeout in the banking and savings and loan industries, the need by consumers and corporations to work down their heavy debt loads--are all still hurting the economy.
Thursday’s economic growth report showed that consumer spending dropped by $2.7 billion in the second quarter. That was in contrast to a $40.3-billion increase in the first three months of the year.
News of the drop in consumer spending was tempered slightly by a separate Commerce Department report showing that new home sales jumped 7.9%, breaking a string of four consecutive declines. The number of Americans seeking unemployment benefits also fell in the latest reporting period to a 21-month low of 400,000 for the week ended July 18. The figure is down by 21,000 from a week before.
But the overall picture was of a weak economy unable to fully recover from the recession of 1990-1991.
“There is real weakness in the consumer sector, especially,†said Allen Levenson, an economist at the WEFA Group, a forecasting firm in Bala-Cynwyd, Pa.
That weakness suggests that high unemployment and sluggish wage and income growth are combining to make it difficult for consumers to pay off their debts--despite nearly three years of modest spending habits.
Debt for the average American household equaled 95% of household income after taxes in 1991, up from just 80% in 1985, according to DRI-McGraw Hill. While consumers are paying off high-interest credit cards, declining interest rates have lured them into taking out larger mortgages and home equity loans this year, leaving overall household debt levels virtually unchanged, observed Wyss, of DRI-McGraw Hill.
Allen Meltzer, an economist at Carnegie Mellon University in Pittsburgh, Pa., observed that the sharp drop in real estate values continues to make Americans “feel poorer†and worry much more about their debt burdens. “The amount of debt they have, the size of their mortgages, wouldn’t bother them if their houses were worth more,†Meltzer said. “But if your house isn’t worth as much, you aren’t going to go out and spend.â€
Without a jump in consumer spending, which accounts for roughly two-thirds of the economy, “you are going to continue to see this economic pattern that we have had in the first half of the year, with a little growth spurt followed by more weakness,†Wyss said.
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Gross domestic product measures all the goods and services produced by workers and capital located in the United States, regardless of ownership.
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