NC STATE UNIVERSITY
North Carolina Cooperative Extension Service
COLLEGE OF AGRICULTURE
LIFE SCIENCES
COOPERATIVE
EXTENSION
nc state Economist
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Agricultural andResourceEconomics *J anuary/Febmary2002
2002 Economic Outlook - General T rends
National and North Carolina
M.L. Walden, William Neal Reynolds Distinguished Professor and Extension Economist
The National Economy:
A Recession Begins
According to the National Bureau of Economic
Research, the U.S. economy entered a reces¬
sion in March, 2001. This marked the start of
the first recession in ten years. As 2001 came
to a close, the most important questions were
how severe would the recession be and how
long would it last?
The movement to a recession is clearly
evident in the aggregate statistics. Real gross
domestic product, the broadest measure of
economic activity, increased 4.1% in 2000. In
the first quarter of 2001, the GDP increased
1.3%; in the second quarter, it increased 0.3%;
but in the third quarter, real gross domestic
product declined by 1 .4%. It is widely ex¬
pected the decline will continue in tine fourth
quarter of 2001 and possibly the first quarter of
2002.
To date, the 2001 recession has been differ¬
ent than other recent recessions. The 2001
recession has primarily affected the business
sector. Although unemployment has increased,
consumers have fared better than businesses.
Industrial production fell 2% in 2001, and
business investment disappeared. Corporate
profits were negative, and one million manu¬
facturing jobs were cut during the year. The
troubles in the business sector were reflected in
a declining stock market in the first half of
2001.
In contrast, consumers weathered the eco¬
nomic storm rather well. Although the jobless
rate did jump from 4.2% to 5.7% during 2001,
the unemployment rate was still significantly
lower than in previous recessions. Wages rose
at an annual rate of 3.5%, and both inflation-
adjusted disposable income and consumer
spending rose. In previous recessions, con¬
sumer income and spending either did not
increase or fell.
Impact of September 11
The strength of the consumer and non¬
manufacturing sectors of the economy in the
spring and summer of 2001 has led many
economists to believe the economy would have
escaped an official recession had it not been for
the terrorist attacks of September 1 1 . The
economic aftershocks of the attacks were
strong enough to cause the economy to decline
in the third quarter and likely again in the
fourth quarter.
Admittedly, it is difficult to estimate the
economic impact of
9/11.
However, one
estimate from two University of Chicago
economists puts the annual reduction in na¬
tional income as a result of the attacks at $250
billion or 2.5% of gross domestic product.
Mr. Greenspan’s Medicine
Well before the recession was “officially”
declared, the Federal Reserve (the “Fed”) was
using its power over monetary policy to stimu¬
late the economy. During 2001, the Fed
reduced its key short-term interest rate (the
federal funds rate) eleven times, from 6.5% to
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