Economic Growth in 4th Quarter Revised Upward to Strong 4.9%

The nation’s economy surged at an annual growth rate of 4.9% during the last three months of 1984, a pace even more vigorous than reported earlier, the Commerce Department said Thursday.

The report was a sharp upward revision of the government’s projection last month that the gross national product--the nation’s total output of goods and services--had increased 3.8% during the final quarter of last year. And it was much higher than a “flash” estimate issued last December that had projected that the economy would close out 1984 at a 2.8% annual growth rate.

For all of last year, the department said, economic growth--propelled by an astonishing first-half spurt--was pegged at 6.9%, up slightly from an earlier estimate of 6.8% and the best since 1951. Inflation for the year was 3.8%, the lowest since 1967 despite being revised upward slightly from 3.7%.

On balance, Commerce Department officials and private economists agreed, the ground was laid for continued strong growth during the first half of 1985. And, at the White House, President Reagan hailed the results as a vindication of his economic policies and a harbinger of an even more rosy future.

Expansion ‘Rolling Forward’

Thursday’s “harvest of good news sprang from the seeds of new policies for greater economic freedom . . . that we planted in our first term,” Reagan declared in a statement. “The great American expansion is rolling forward, carrying us from a banner year in 1984 toward continued success of high growth, more jobs and low inflation in 1985.”

Much of the upward revision in the fourth-quarter growth rate was caused by an abrupt 32% drop in imported goods from October to December, which allowed a surplus of U.S. exports for the quarter.

Although the figure was a statistical anomaly in view of last year’s record $123-billion trade deficit, it was significant enough to provide a stronger-than-expected boost to domestic production.

In part because of the slump in imports, final sales of domestic goods soared 8.5% during the quarter, compared to a 1% drop in that category during the economic slowdown last summer, the Commerce Department noted.

Overall growth during the third quarter, a period during which imports surged 55%, was only 1.6%.

Noting those striking disparities in export-import statistics, Joseph Carson, an economist with the investment firm of Merrill Lynch, concluded that the strong rebound of last year’s closing quarter was more apparent than real.

Mostly Positive

“In the third quarter, there was a strong run-up in imports which depressed domestic production,” he said. “In the fourth, there was a sharp falloff as inventories were drawn down by foreign producers and wholesalers. That falloff in imports stimulated domestic production and raised our growth statistically--but real domestic growth was less than it seems.”

Nevertheless, he said, the year-end news was mostly positive “so it looks like a solid expansion through the first half of 1985.”

Other economists agreed, with Robert F. Wescott of Wharton Econometrics, a Philadelphia forecasting firm, declaring: “The fourth-quarter results mark an excellent jumping-off point for 1985. Consumption numbers for November and December were strong enough to set us on course for 5% growth in the first quarter of 1985.”

Yet Wescott, too, saw persistent trade deficits as a potential difficulty. “The one problem area is net exports and will continue to be,” he said.

Allen Sinai of Shearson Lehman Bros. Inc. said he considers as more immediate threats the probability of a renewed tight-money policy by the Federal Reserve Board and higher interest rates, but he, too, is optimistic.

“It was a report that shows a good deal of underlying strength in the fourth quarter of last year and for the first half of 1985,” he said.