An Anemic Recovery? - By John J.Erceg and Lydia K.Leovic

Sep 21, 2026

Analysis of late-1990s economic indicators highlights an apparent end to the 1990–91 recession and assesses the early stages of recovery. The Fourth District Economists' Roundtable, using the latest panel data, links a spring 1991 end to the downturn and discusses weaker-than-historical real GNP growth. Two recovery scenarios are contrasted: a subdued outlook constrained by debt, taxes, interest rates, employment adjustment, and declining confidence versus a stronger path supported by lower oil prices, reduced interest rates, currency effects, and improved profits and cash flow.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages5

Reading Time13 min

AccessFree to download

Two Recovery Scenarios

Constraints to Recovery

Consumption

# An Anemic Recovery? by John J.Erceg and Lydia K.Leovic T Ihe latest economic indicators are sig-naling an end to the recession that beganlast July.According to most forecasters,a recovery has already begun,or is aboutto begin shortly.Less certain are ques-tions about the strength of the recoveryand about Federal Reserve policy in theearly stages of the upturn. These issues were central to the mid-year meeting of the Fourth DistrictEconomists'Roundtable,held June 14at the Federal Reserve Bank of Cleve-land.The most current data available tothe panel suggest that the 1990-91recession,the ninth economic contrac-tion of the post-World War II era,ap-parently ended in the spring months of1991.Ifso,it would rank about averagein duration compared with the previouseight recessions,which lasted an aver-age of 11 months. The 1990-91 downturm also representsone of the mildest of the postwar reces-sions in terms of GNP contraction,ac-cording to the Roundtable forecasters.The median of 24 forecasts shows a vir-tual standstill in real GNPin 1991:IIQ,following a l percent decline between1990:IIIQ and 1991:IQ.This compareswith an average real GNP contractionof 2.6 percent between peak and troughquarters of the previous eight recessions Why do most forecasters believe that theeconomy may be in or close to a recov-ery?A number of leading indicators thatusually foreshadow economic recov-eries by two to eight months advancedbetween February and April,suggestingto a Roundtable panelist that a business trough occurred between May and July.His computed estimate of the probabilityof recovery grew to 98 percent in April.Moreover,the Commerce Department'scomposite index of leading economic in-dicators rose for four successive monthsbetween February and May.In the past,consecutive increases of that lengthhave indicated that a trough occurredwithin the last two months or will bereached within the next six months,according to a study by the FederalReserve Bank of Cleveland. Although forecasters uniformly agreethat recovery in real GNPwill get underway by 1991:IIQ,there is disagreementabout its strength,at least in the earlymonths.In the first year of the seven re-coveries since the mid-1950s,real GNProse 5.7 percent (6.7 percent if the1949-50 recoveryis included).Themedian forecast of the Roundtable groupanticipates only about a 2.8 percent in-crease in real GNPin the four quartersbetween 1991:HQ and 1992:IIQ(seefigure 1) ## ■ Two Recovery Scenarios Estimating the strength of the early stageof expansions has often eluded forecast-ers,and divergent views about the out-look are not uncommon.The current epi-sode is a good case in point.At least twoscenariosof the economic outlook werepresented at the Roundtable meeting,onecalling for a relatively mild recovery andanother indicating a somewhat strongergrowth path for output.Both of these,however,fall short ofthe real GNPgrowth rate in the past recoveries. August 1,1991 Now that the economy appears tohave climbed out of recession,whatare the prospects for the early stagesof expansion?Forecasters attendingthe most recent Fourth DistrictEconomists'Roundtable expresseddivergent views about the strength ofthe recovery,but their consensus isfor a subdued gain in real GNPthrough mid-1992.A critical factorwill be the Federal Reserve's commit-ment to controlling inflation as therecovery unfolds. The milder scenario is based on severalpossible constraints that are likely toinhibit the growth rate of the economy,according to oneof the Roundtable mem-bers.These include a high level of privatedebt,tax increases that have taken placesince last fall,relatively high interestrates going into recovery,a long-temdownward adjustment in service-sectoremployment,and waning consumer con-fidence,all of which are likely to restrainreal GNPgrowth to a 2.5 to 3 percentrange at least through the end of 1992. An alternative view is that the upturnwill not be as weak as indicated by themedian forecast.The bright

FAQs

What does the report conclude about the end of the 1990–91 recession?

Panel data suggest the 1990–91 recession ended in spring 1991. The report characterizes the recession’s duration as about average versus prior postwar recessions.

Why do forecasters disagree about the strength of the recovery?

The disagreement centers on early expansion strength, even though recovery timing for real GNP is broadly expected by 1991:IIQ. The report presents contrasting growth assumptions and supporting conditions.

What factors are cited as constraints on recovery?

Constraints include high private debt, tax increases, relatively high interest rates, slow adjustment in service-sector employment, and waning consumer confidence. These are expected to limit real GNP growth through at least the end of 1992.

Sep 21, 2026

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