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Nation's Economy Slows to Annual 1.1% Growth Rate in 4th Quarter

March 19, 1987|OSWALD JOHNSTON | Times Staff Writer

WASHINGTON — The nation's economy slowed to a 1.1% annual growth rate in the last three months of 1986, an even more sluggish pace than earlier reported, the Commerce Department said Wednesday.

But hidden in the 0.2-point downward revision were some encouraging signs, economists noted. Chief among these was a slight improvement in the record trade deficit registered last year and a larger sell-off of business inventories than had earlier been reported.

Both developments led analysts to predict a comeback in the current quarter, with an annual growth rate of as much as 3% to 3.5%, as industries replenish inventories and continue to sell more products abroad.

In a separate report, the Commerce Department said after-tax corporate profit jumped 6.1% during the last quarter of 1986 after a 5.5% increase in the July-September quarter.

The after-tax-profit increase was the largest in 3 1/2 years, noted David Wyss of Data Resources Inc., who said that "corporations may at least feel they can begin to fatten profit margins somewhat."

Wyss, whose Lexington, Mass., forecasting firm has regularly issued predictions well below the Reagan Administration's rosy forecasts, termed the GNP report "bullish" because of the inventory figures and said he is sticking to a prediction of an annualized growth rate of 3% to 3.5% for the current quarter.

Manufacturers Hanover Trust Co. Chief Economist Irwin L. Kellner, usually an optimist, sees a 2.7% annual growth rate in the quarter. The inventory decline "is not a bad situation because it means there will be more strength in spending than we had earlier thought."

In addition, he noted that the annual rate of investment in business equipment was upgraded from 1.3% to 3% after three consecutive quarters of decline.

"The difference between the fourth quarter of last year and the first quarter this year will be like the difference between night and day," he said.

"The inventory drawdown was larger than we first thought, which says that the first quarter is going to be driven by a restocking," added Michael Penzer, senior economist and vice president at Bank of America in San Francisco. "That will be the big story in the first quarter."

Penzer said he is estimating a 3% annual growth rate in the current quarter, with gradually improving trade statistics and inventory rebuilding offset slightly by somewhat slower consumer spending.

"There had been a big consumption bulge in the third quarter driven by concessional auto financing and we've been paying for it ever since," he said.

Consumption declined 0.4% in the quarter after increases of more than 6% in each of the previous two quarters.

In the final revision of the nation's overall economic record last year, the Commerce Department noted these significant changes: Non-farm inventories declined by an annual rate of $9.8 billion in constant 1982 dollars, instead of $7.9 billion; the trade deficit narrowed from $151 billion to $148 billion.

Analysts found the trade adjustment, however slight, especially encouraging, because it gave more weight to the widely held belief that the nation's trade woes bottomed out at the end of last year.

For the whole quarter, exports increased at a strong annual rate of 16.7%, or $14.6 billion, after an increase of 13.3%, or $11.7 billion, during the previous three months.

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