U.S and Kansas Economic Forecasts for 1991 Midyear Update

Abstract

The National Economy

The U.S. economy entered a recession sometime during the third quarter of 1990. Although output grew 1.4 percent during the quarter, most sectors experienced weakening growth or contraction. Output declined 1.6 percent in the fourth quarter of the year; consumer spending alone fell by 3.4 percent. The major causes of the decline appear to have been a large increase in imported oil prices coupled with a growing concern about the situation in the Middle East. Nevertheless, aggregate demand as measured by final sales actually grew during the quarter, due to an impressive performance by net exports and increases in government spending. However the growth in demand was not sufficient to offset a significant inventory reduction by firms. GNP dropped a further 2.8 percent in the first quarter of 1991, as firms reduced spending on plant and equipment and continued to reduce inventories. Consumption spending, residential investment spending, and, surprisingly, government spending all fell during the quarter. Modest improvements in net exports could not offset these declines, and final sales as well as output declined.

The forecast is for the recession to end sometime during the third quarter of 1991, making it about average in terms of depth and duration. The recovery will not be especially strong , however, particularly in the early stages. The beginning of the recovery in the second quarter will be driven by increases in consumer spending; however both residential and nonresidential spending will fall by over 5 percent during the quarter. Net exports will decline slightly, as mild export growth will be exceeded by increases in imports due to increased consumer spending. Government spending will be essentially unchanged from the previous quarter.