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Fact check: Economic slowdown doesn't mean recession ... yet

WASHINGTON (CNN) -- The U.S. economy has enjoyed the longest boom in American history, but is it coming to an end?

Dick Cheney, the potential Republican vice president, says it might be: "We may well be on the front edge of a recession here," he said Sunday on NBC's "Meet the Press."

Dick Cheney
Dick Cheney: "We may well be on the front edge of a recession here."  

Cheney raised the possibility in the process of making the case for tax cuts under a possible George W. Bush administration. Senior White House aides also called Cheney's remarks as a pre-emptive move to reduce economic expectations for a Bush-Cheney administration.

But some private economists say there is a real risk of a recession in 2001.

"I think our view here at S&P is there's a 30 percent chance sometime in 2001 where we may go into a recession," said Diana Vazza, an analyst at Standard and Poor's. The firm says a record number of businesses are defaulting on bond payments -- a pattern similar to what happened before the last recession, in 1990-1991.

Among other signs of a slowing economy:

-- Vehicle sales dropped again in November. They're currently down 12 percent from their peak in February.

-- Energy prices were up 13 percent last year and 17 percent this year, acting as a tax on the whole economy.

-- The stock market has gone into a skid. The once high-flying NASDAQ exchange, where much of the high-tech sector trades, closed Monday down more than 45 percent from its peak for the year; other indices are down as well, though more traditional stocks' declines have not been as steep.

As a result, consumer confidence is falling -- in other words, fewer people are planning to buy homes, cars or appliances in the next six months and that, could mean trouble.

"If the economy continues to decelerate to the point where it spooks households into spending much less this holiday season on retail goods, we could have a real problem," said Craig Thomas, an observer with the economic data clearinghouse

Thomas doesn't expect a recession, nor do many other economists, but economic growth has slowed from 5.6 percent in the second quarter of 2000 to 2.4 percent in the third quarter -- the slowest growth in four years, but still respectable.

Jobs are still plentiful, but the pace of job creation is down. So are the number of help-wanted ads placed in newspapers. And claims for unemployment insurance are going up as layoffs hit not only the dot-com industry, but banking and manufacturing as well.

Many economists say a slowdown in economic growth is a bigger danger than a full-blown recession, which they consider a remote possibility.

"Given where we've been -- we've been in a huge boom -- it will feel to a lot of us like a recession, without there statistically being one," said Allen Sinai, president of the advisory and research firm Primark Decision Economics and an informal adviser to both Democratic and Republican administrations.

Most economists are still expecting moderate growth, assuming most sectors of the economy follow projections. But the worry is what one economist called "The Perfect Storm" scenario -- a jump in oil prices accompanied by declining stock prices and worsening economies overseas -- a scenario that's no longer so hard to imagine.


Tuesday, December 5, 2000



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