GNP Rises Sluggish 2.1%; Inflation Rate Heats Up to 5.4%

The economy has grown at a surprisingly sluggish rate of 2.1% so far this year, down sharply from the pace set in 1984, the government estimated today.

The Commerce Department put growth in the gross national product, heavily burdened by foreign competition, at its slowest rate since a weak 1.6% pace turned in from July through September last year.

The tentative “flash” projection of overall growth in the GNP from January through March also showed inflation to be heating up, which discouraged international traders and sent the value of the dollar plummeting on foreign exchange markets.

Inflation, as measured by the government’s “implicit price deflator” is running at a 5.4% annual rate, nearly twice that of the fourth quarter, the department said.

Almost every leading economist had anticipated stronger growth. Some suggested the government economists were off in their estimate even after the figures were published.

Revision Predicted

“The first-quarter GNP numbers are likely to be revised upward,” economist Jerry Jazinowski of the National Assn. of Manufacturers said. “GNP should increase by only about 3% to 3.5% due to a general inventory correction throughout the economy and a massive surge in imports.”

GNP specialist Herman Liebling had been nearly alone in his prediction weeks ago of a 2.5% pace and said that it was simply the result of importers making up for time lost in the fourth quarter.

At the White House, presidential spokesman Larry Speakes said in a written statement that the new inflation gauge “must be weighed against recent reports of the producer price index and consumer price index, which show inflation low and under control.”

Steady Growth Expected

He said that while the report on economic growth was lower than projected, “we continue to believe that the economy is on a path of steady growth with low inflation.”

The latest report also took some strength away for the October-December period, marking down growth to 4.3% from 4.9% at inflation-adjusted annual rates.

Corporate profits for the fourth quarter, after taxes, grew only 0.4% but that was still better than the 5.7% decline in the third quarter of 1984.

The GNP “flash” figure, issued four times a year, assumed far greater importance this time around because the Ohio savings and loan crisis focused worldwide attention on the U.S. economy.

Slowdown in Jobs

In recent days the Labor Department has reported a slowdown in new job creation, the Federal Reserve has reported a rare decline in industrial production and Wednesday the Commerce Department said personal income gained a very weak 0.3% in February.

The value of the dollar on foreign exchange markets amounts to an early warning system of changes in sentiment about the American economy. It dropped suddenly on the news that the flash was so weak and inflation higher than expected but soon recovered some of the loss.

Many analysts have warned that world money markets are poised to readjust themselves as European economic growth creeps upward, making the American economy seem a less attractive place for investment.

But a slowdown in the record level of investment and lending to the United States could raise domestic interest rates and cut into the U.S. standard of living.