Economic Growth at Slow 0.7% : First-Quarter Rise Weakest Since 1981-82 Recession

The U.S. economy, battered by foreign competition, grew at a disappointing 0.7% annual rate during the first three months of the year, its lowest rate since the end of the 1981-82 recession, the Commerce Department reported today.

The latest growth figure for the gross national product in the January-March quarter represented a sharp revision from two earlier estimates of first-quarter performance and was far below the projections being made by economists before the year began.

In March, before the quarter had ended, the department estimated growth at 2.1%. Last month, that figure was revised downward to 1.3% as more evidence mounted of the battering the U.S. industrial sector was taking from foreign competitors.

On Capitol Hill, Treasury Secretary James A. Baker III said the first quarter “was a good bit slower than we anticipated . . . and we are going to see a less strong second quarter” than expected.

But he predicted that the economy will strengthen considerably in the third and fourth quarters and that the year’s overall 4% growth targets will be met.

Markets Beginning to Rally

The latest evidence of how far the economy has fallen from the 6.8% growth turned in during 1984 comes at a time when financial markets are beginning to rally on hopes that better days are ahead.

That optimism was fueled by action by the Federal Reserve Board last week to cut its discount rate to 7.5%. Many analysts believe that move, coupled with congressional progress in cutting soaring budget deficits, will work to revive the economy.

But more pessimistic forecasters contend that the declines in interest rates and federal budget cuts are coming too late to keep the U.S. economy out of a recession.

The basic weakness in the economy during the first quarter stemmed from the country’s huge merchandise trade imbalance. Imports surged ahead at an annual rate of 31.4% in the first three months of the year while exports were declining at a 6.1% rate.

The country’s poor trading performance has been blamed on the high dollar, which makes imports cheaper and more attractive to Americans and U.S. products more expensive and harder to sell overseas.

Drop in Food Prices

In a separate report today, the Labor Department said the first drop in food prices in 11 months offset a continued creep in energy costs to hold the April inflation rate to 0.4%.

Food prices, which were flat in March, declined 0.2% last month--the first drop since last May, when they fell by the same amount.

Gasoline prices, continuing to spurt upward from what analysts have characterized as unusually depressed winter levels, rose 3.1%.

For the first four months of 1985, inflation at the retail level was running at an annual rate of 4.2%, just slightly ahead of the 4% pace of last year.

Medical care costs rose 0.6% last month after a 0.8% increase in March. Those costs are up 5.9% since last April--the steepest gain for any major component of the overall index. Doctors’ fees have begun creeping up lately with the expiration of a voluntary one-year freeze.