WASHINGTON -- The economic recovery turned out to be stronger than expected while the recession wasn't quite so bad as believed, the Commerce Department said in revised estimates for gross domestic product released yesterday.
The latest GDP figures also showed that growth slowed to a snail's pace of only 1.3% in the first half of this year, leaving analysts wondering how much of a pickup is in store. Second-quarter GDP grew 1.8% after a piddling gain of 0.8% in the period from January to March.
But growth in 1992 turned out to be surprisingly healthy despite the election-year pounding that candidate Bill Clinton gave the Bush administration for neglecting the economy. Instead of rising 2.1%, GDP was actually up 2.6%, the Commerce Department said. Moreover, growth surged a revised 5.7% in the fourth quarter, a full percentage point above the 4.7% increase previously reported.
"The bottom line is that George Bush was right, and the economy wasn't as bad as it looked." said John Williams, managing director of Bankers Trust Co. "The expansion was a little better than we thought, and the recession wasn't as deep."
The Commerce Department figures showed that the economy still contracted in the second half of 1990 and the first quarter of 1991. But GDP for 1991 as a whole dipped only 0.7% instead of 1.2%. and 1990 saw growth of 1.2% instead of 0.8%.
The new figures make up the agency's annual "benchmark" revisions to the GDP accounts and reflect fresh information collected on retail sales and other figures over the last three years.
Bob Parker, a spokesman for the Bureau of Economic Analysts, told reporters in a briefing that the revisions "are somewhat larger than what we've had in the past." He said upward adjustments for consumer spending on goods, business fixed investment, and spending by state and local governments were the main factors behind the changes.
Bureau officials also said real disposable income in the fourth quarter of last year was up 2.2% instead of 1.3%, reflecting bonus payments to employees in the fourth quarter that were apparently accelerated to beat tax law changes that took effect Jan. 1. However, it was not known how much of the bonus money went into the extra spending that contributed to the 5.7% burst of yearend GDP growth.
"That was a time when the press was telling everybody the economy was in the doldrums and kicked Bush out." said Paul Boltz, financial economist for T. Rowe Price Associates Inc. In fact, growth last year was "a very respectable" 3.9% measured from the fourth quarter of 1991, up from the 3.1% previously calculated by the Commerce Department, he said.
"When you average things out, the economy has grown at about a 3% rate, but we didn't notice it," said Boltz. "It helps explain how the unemployment rate can be declining and how consumer spending can stay strong. This report solved a lot of riddles".
Boltz said growth in the second quarter was held to a modest 1.8% by a slowdown in the rate of inventory accumulation by business. Real final sales, a measure of demand that excludes change in inventories, rose a healthy 3.1%. That suggests GDP could still rise by 3% in the second half of the year, in line with forecasts of the Clinton administration and the Federal Reserve, he said.
Nancy Kimelman, chief economist for Technical Data, said she is sticking by her forecast for growth above 3% in the second half. But the upward revisions to the GDP data raise questions about why employment growth has not been stronger, she said.
Other analysts are more pessimistic about the economy, especially given recent reports on new housing sales and trade that suggest things got off to a shaky start in July.
"I don't think we're going to get 3% in the second half at all," said Williams. "I think we could edge up to 2%, but I don't think we're going to go any faster than that. It's all very nice to revise up history, but if prospects don't look good, it really doesn't help very much."
The Conference Board, in a separate report yesterday, served up a reminder that consumers remain pessimistic about jobs and the prospects for economic growth in the next six months. Overall, the board's consumer confidence index for August posted a reading of 59.0, basically unchanged from July and identical to the low level of a year earlier. The index is based on a 1985 average that equals 100.
"There is faint hope in the recent consumer confidence readings that a significant acceleration in the nation's economic growth rate is imminent." said Fabian Linden, executive director of the board's consumer research center, in a statement.