GNP Shows Weak Rise of 1.7% : Revised Figure Dashes Hopes for 2nd-Quarter Spurt

The economy, battered afresh by foreign competition, grew at a weak annual rate of 1.7% from April through June, the government said today.

Growth in the gross national product, the broadest measure of the nation’s economic health, was cut almost in half from a preliminary estimate made in June, before the second quarter had ended.

At that time, the Commerce Department projected growth at an annual rate of 3.1% for the April-June period.

Today’s revision dashed hopes that the economy had picked up substantially in the second quarter and emphasized just how weak economic activity has been so far this year.

Indeed, Commerce Secretary Malcolm Baldrige said the Administration’s estimate for growth for the full year would have to be revised downward.

Baldrige refused to predict what the revised forecast would be. But he said he remained optimistic that economic growth will pick up in the second half of the year and said he could see a rebound to around a 4% annual rate.

However, in another indication of just how weak the economy has become, the government also reported today that industrial production rose a slight 0.1% in June, showing how much pressure domestic manufacturers have been under from foreign competition.

1% Annual Growth Rate

For the first six months of 1985, the economy grew at an annual rate of just 1%, far below the 6.8% turned in for all of 1984.

While no one expected that pace to be duplicated this year, no forecasters had anticipated just how much the economy would weaken.

Today’s downward revision means that the economy would have to grow at a torrid 6.9% rate in the second half of the year to achieve the Reagan Administration’s projection of 3.9% growth for all of 1985.

Many analysts believe economic activity will improve little in the second half of the year and are forecasting growth of little better than 2% for the entire year. Such a sluggish pace would likely mean a rise in the unemployment rate and raises the threat that some unexpected event could tip the fragile recovery into another recession.

The economy’s poor performance this year has come primarily from a weak showing by manufacturers, which have been losing sales to foreigners.

Strong Dollar Blamed

The sales loss has been attributed to the strong dollar, which makes imports cheaper and U.S. goods more expensive on overseas markets.

The strong dollar has provided benefits, primarily by keeping inflation under control.

The new report said that inflation, as measured by an index tied to the GNP, rose at an annual rate of just 2.8% in the second quarter. The increase in the GNP implicit deflator, which measures changes in composition as well as price changes, had been a much sharper 5.4% in the first quarter of the year.

The Commerce Department said a principal reason for the downward revision in second quarter growth was a weaker showing by U.S. exporters than had originally been expected.

The department said exports had declined at an annual rate of 12.5% in the second quarter, the third consecutive decline.

At the same time exports were falling, imports continued their relentless rise, growing at an annual pace of 1.4%. This increase came on top of a giant annual rate of 32.3% in the first three months of the year.