Economy’s 2% Growth Rate Blamed on Trade Deficit

The economy, battered by a rising trade deficit, grew at a weak 2% annual rate in the spring, the government reported today.

The rise in the gross national product, the value of the nation’s total output of goods and services, was revised slightly upward from last month’s estimate of 1.7% growth for the period from April through June.

Even with the small upward revision, however, today’s GNP report continued to show an economy performing far below original expectations for 1985.

4% Growth Sought

When the year began, the Reagan Administration and most private economists were calling for growth of 4% in 1985.

But the economy grew at a barely perceptible 0.3% rate from January through March. That slow pace, combined with the sluggish 2% April-June quarter, translates into annual growth so far this year of just 1.1%.

That means the economy would have to rebound sharply to a 4.9% growth in the final six months of the year to reach the Administration’s lowered 3% growth rate for the full year.

Commerce Under Secretary Sidney L. Jones, a top Administration economist, said that today’s GNP report showed the economy continuing in the same growth path that has held for the last year, strong domestic demand being met in large part by imports.

Improvement Unlikely

Jones conceded that the Administration’s forecast for a strong second-half rebound, while possible, was not the most likely scenario for coming months.

“A more likely outcome is that you will have moderate growth in the 3% zone for the second half. That would give us about 2% to 2.5% growth for the year,” he said.

Jones said that reaching the Administration’s hoped-for rebound would take “considerable strength in consumption and business investment. Both of those are still positive, but they don’t seem to be accelerating,” he said.

The reason for the sharp slowdown in activity this year has been the soaring trade deficit, which is forecast to balloon to a record $150 billion.

Production Cutbacks

A flood of imports has robbed domestic manufacturers of sales and forced cutbacks in production. Since January, U.S. industry has lost 220,000 manufacturing jobs.

The trade hemorrhage is blamed primarily on the strength of the U.S. dollar, which makes imports cheaper and U.S. goods more expensive and thus harder to sell on overseas markets.

But the strong dollar has helped hold down inflation in this country.