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Essay on Events during the Late 1990's that Resulted in a Recession in 2001
Main factor that may have helped push the economy into a recession was an unexpected decline in real net exports. During the 2001 recession, real exports of goods and services fell about 10 percent, which was substantially larger than the average post-World War II recession decline of roughly 0.75 percent (Jorgenson et al 2002). There were two factors working against U.S. exports leading up to the recession.
The first of these was an appreciation of the trade-weighted value of the U.S. dollar. After falling nearly 5 percent from August 1998 to August 1999, the real value of the U.S. dollar began to rise shortly thereafter. By October 2000, the dollar was up nearly 13 percent from a year earlier. In addition to a price effect (an appreciation of the trade-weighted value of the dollar), growth of U.S. exports was tempered by a worldwide slowdown in economic activity, as world output growth slowed from 4.7 percent in 2000 to 2.3 percent in 2001
The decline in exports during the 2001 recession relative to 1998-2000 was most pronounced in non-automotive capital goods and consumer goods and travel and transportation services. The largest percentage-point declines in U.S. real exports were generally for those destined for Asia: South Korea (–58.4 percent), Taiwan (–37.3 percent), and Japan.
Swings in business inventories typically account for a large percentage of the decline in output during a recession. As with most downturns, an unintended accumulation of business inventories relative to sales also preceded the 2001 recession. What was different this time is that the imbalance between inventories and sales was outside the range of previous downturns. The decline in real private inventory investment was 3.6 percent, which surpassed the previous largest decline of 3.2 percent seen during the 1948-49 recession......
