THE U.S. Commerce Depart ment said “abracadabra” and made the 2001 recession disappear.
While everyone last Friday was focusing on the freshly released estimate of the nation’s gross domestic product for the second quarter of 2004, the real action was taking place in the revisions.
As I told you in last Thursday’s column, the department’s Bureau of Economic Analysis was not only scheduled to give the most recent snapshot of the current economy but was also going to revise the entire GDP picture for the Bush administration.
And guess what?
With a little snip here and a tuck there, the department made the recession – at least as it is traditionally defined – disappear with the skill of a plastic surgeon getting rid of a patient’s annoying worry lines.
The magic occurred in the numbers for the second quarter of 2001.
Up until last Friday, the BEA had been reporting that the nation’s gross domestic product fell 0.6 percent during that quarter.
That was a problem because the first quarter of 2001 had been down 0.2 percent and the third quarter of that year had been lower by 1.3 percent.
Economists traditionally consider the economy to be in a recession if there are two consecutive quarters of contracting GDP. And until last Friday’s revisions, the U.S. met the qualification during 2001.
Not anymore.
The government now says the GDP didn’t really fall 0.6 percent in the second quarter of 2001 but actually rose 1.2 percent. So, the string of three losing quarters was suddenly broken up by a winner in the middle.
How lucky!
I asked economists at the BEA how a GDP number could change so dramatically so many years later.
One of the big reasons, I was told, is that the Commerce Department suddenly decided to use some seasonal adjustments for car sales that were already being employed by the Federal Reserve.
“The Fed includes special holidays” in the adjustments, a BEA economist told me. “We liked their (seasonal adjustments) better.”
How fortunate!
The National Bureau of Economic Research, a private group, has the unofficial role of declaring recessions. It’s unlikely that the group will change the historic record because of Friday’s changes.
But the move could play well on the campaign trail.
Enough about the past.
The BEA also reported that GDP for the quarter that just ended rose a lower-than-expected 3 percent. Economists had been expecting 3.7 percent to 3.8 percent annual growth.
GDP growth for the first quarter of 2004 had been 3.9 percent but was bumped up to 4.5 percent.
Bottom line: economic growth is slowing but not collapsing. And I’ll say it again: I will be very surprised if the Fed raises interest rates again before the election.
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Don’t get too excited by last week’s modest rally in stock prices.
It was the end of the month and professional traders always try to get their stocks up before having to report results to their customers.
If the rally continues strongly into this week, then you can be impressed.
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I’m now hearing that a report critical of how Wall Street votes shares that investors leave in its care will arrive next week.
The General Accounting Office prepared the report. But I’m told Sen. Ted Kennedy’s office didn’t think the study was edgy enough so it was sent back to GAO for a little spice.
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Please send e-mail to:jcrudele@nypost.com