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Economy Grew at 4.5% Rate in Fourth Quarter

February 26, 1988|ART PINE | Times Staff Writer

WASHINGTON — The nation's economy grew somewhat more rapidly than previously thought during the final three months of last year, the Commerce Department reported Thursday, easing earlier fears that the United States may be poised for a serious recession.

Revised figures show the "real" gross national product--the nation's output of goods and services after adjustment for inflation--rose at an annual rate of 4.5% during the quarter, rather than the 4.2% pace that the department reported in a preliminary estimate a month ago.

The growth rate was the fastest in almost two years.

Like the earlier estimates published in January, the new figures showed the economy faces a slowdown in consumer spending that is leaving businesses, particularly retailers, with billions of dollars worth of unsold inventories. Analysts say that means manufacturers may have to slow their production somewhat until those stocks are sold off.

Sluggish Growth Seen

Some economists were encouraged because the revised figures showed that consumer spending fell slightly less sharply than reported in the January estimate, while inventory levels rose a little less rapidly. At the same time, however, the improvement in the nation's trade picture was not as large as had been projected.

As a result, Edward F. McKelvey, senior economist for Goldman, Sachs & Co, a New York investment banking firm, said the new figures "do not tell you a significantly different story. We still expect to see a sluggish rate of growth in the first half of this year. What happens after that will depend upon how quickly businesses made this correction to pare back their inventory levels."

Donald Ratajczak, director of Georgia State University's economic forecasting project, said the revisions "are small ones, and haven't changed the fact that we still have a large inventory overhang." However, he added that the changes "are in the right direction."

The figures came as, separately, the White House said it believes the Federal Reserve Board is doing "an outstanding job" in controlling the nation's money supply and is concerned about reports that a Treasury official tried to pressure the Fed last month into pumping more money into the economy.

Fed Chairman Alan S. Greenspan disclosed the January incident in testimony before Congress on Wednesday and openly warned the Administration that any further attempts to pressure the Fed could prove counterproductive. He indicated he already had complained to Treasury Secretary James A. Baker III and considered the matter closed.

The pressure came in a letter to Greenspan and other Fed governors from Michael Darby, assistant Treasury secretary for economic policy, urging them to allow more money into the economy lest they spawn a recession. A senior official said later Darby was not speaking for the Administration when he wrote the letter.

GNP Increased $42 Billion

On Thursday, White House spokesman Marlin Fitzwater told reporters the White House has "the highest regard" for Greenspan and is "very concerned about any pressure being applied to the Fed, because they are an independent body (and) they're doing an outstanding job." President Reagan had said at his press conference late Wednesday night that he knew nothing about the incident and was planning to look into it.

The revised figures on output showed the real gross national product rose $42 billion--or an annual rate of 4.5%--during the fourth quarter of 1987 rather than $39.2 billion--or 4.2%--previously estimated. The third-quarter rise was at a 4.3% annual rate.

The inflation rate for the fourth quarter was shown at 3.7%, the same as in the preliminary report.

The department said consumer spending fell $19.8 billion during the last three months of the year, rather than $24.1 billion as previously reported, while real final sales--the broadest measure of business activity--rose 1% or $9.9 billion, rather than 0.6% or $5.3 billion, as reported in the January estimate. During the previous quarter, consumer spending had risen by 6%, or $55.1 billion.

The revised figures showed the increase in business inventories at $56.7 billion during the fourth quarter of 1987, down from $58.3 billion estimated in the January report. The third-quarter rise was $24.6 billion.

Thursday's report showed the improvement in the trade picture--measured by real net exports, which reflect the difference between exports and imports, adjusted for inflation--was not as ebullient as the previous figures had projected. The revised figures showed real net exports up $2 billion during the quarter rather than the $7.7 billion estimated earlier. In the third quarter, real net exports fell by $5.7 billion.

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