U.S. Economy Rising at 3.1% This Quarter : Consumer Prices Up Modest 0.2% in May as Food Costs Decline
The nation’s economy, picking up steam from a nearly flat first quarter, is growing at a 3.1% annual rate in the current quarter, the Commerce Department estimated today.
In a separate report, the Labor Department said consumer prices rose a moderate 0.2% in May, held down by a second straight drop in food prices and an easing in gasoline price hikes. For the first five months of the year, prices were rising at a 3.9% annual rate, virtually matching the 4% gain for all of 1984.
(In Los Angeles, consumer prices posted their steepest increase in nine months, rising 1% in May to put inflation for the last 12 months at 4.5%.)
In issuing its so-called “flash” estimate for the gross national product, the government’s broadest economic measure, the Commerce Department revised its first-quarter figure on the GNP growth rate downward from 0.7% to 0.3%.
Coupled with the consumer price report, the GNP calculation suggests the possibility of renewed economic growth without a reigniting of inflation.
‘Worst . . . Behind Us’
Commerce Secretary Malcolm Baldrige said, “The worst of the slowdown probably is behind us, and we should be back on a higher growth path by summer’s end.”
But he noted that “general weakness was still evident in manufacturing, mining and agriculture--sectors hard hit by foreign competition.”
The first-quarter GNP growth rate was the smallest since a 0.9% decline in the third quarter of 1982, before the current recovery got under way.
The second-quarter estimate, which will be revised at least three times as later data becomes available, affirms analysts’ predictions that the economy will pick up.
The 3.1% rate was better than most projections and holds out hope that the economy could yet exceed a 3% growth rate for the year.
3.9% Growth Rate Forecast
The Reagan Administration’s official forecast is for a 3.9% growth rate for all of 1985, although some Cabinet officers have said informally that it may not be that high.
A recent slide in interest rates, some of it engineered by the Federal Reserve Board, has raised expectations of stronger growth in the second half of the year.
Before today’s GNP report, there had been widespread speculation that the Fed would ease credit even further. The initial strong second-quarter figure, however, is likely to temper that expectation.
In a companion report, the Commerce Department said after-tax corporate profits fell 2.8% in the first quarter.
Declining Food Prices
In May, today’s Labor Department consumer price report said, food prices fell 0.1% after a 0.2% decline in April and no increase in March. Prices had fallen for the preceding nine months.
May’s food price decline included decreases of 1.2% for meats, poultry, fish and eggs and 1.1% for fruits and vegetables.
Gasoline costs rose 0.5% in May, much less than the 3.1% April jump. Gasoline prices have risen 7.4% in the last three months but are still 11.2% below their peak level of March, 1981.
Transportation costs, including the gasoline increase, were down 0.2% after rising 0.8% in April.
