‘Flash’ Shows Slim Growth in Economy : Estimated 2.8% Rate for Summer Below Reagan’s Predictions

The economy grew at a modest 2.8% annual rate during the summer, far below the strong pickup predicted by the Reagan Administration, the government estimated today.

The Commerce Department’s initial “flash” calculation of growth during the unfinished June-September period showed only a 0.9% gain from the 1.9% pace turned in from April to June.

The preliminary estimate for growth in the gross national product for the current quarter would appear to doom Administration hopes for 3% growth for the entire year.

Instead, if the current estimate of growth holds through the final three months of the year, the U.S. economy will record a 2% growth rate this year.

‘Growth Recession’

Such a sluggish performance would fit many economists’ definition of a “growth recession,” a period when the economy expands so slowly that it can’t keep unemployment from rising.

The Administration has already been forced to scale back its initial prediction of growth from a 4% projection.

The GNP grew at a barely perceptible 0.3% rate from January through March before picking up to a 1.9% rate in the second quarter. This figure represented a slight downward revision from last month’s estimate, which put second quarter growth at 2%.

The country’s poor international trading performance has been blamed for the sluggish growth. A flood of imports has robbed domestic manufacturers of sales and led to growing pressure on Congress to erect trade barriers.

Rebound Was Predicted

Despite the fact that the trade hemorrhage has shown no signs of abating, the Administration had predicted a rebound in economic growth in the second half to a healthy 5% annual pace.

Now that the rebound did not occur in the third quarter, it would take a phenomenal growth rate of 7.1% in the final three months of the year to reach the Administration’s goal of 3% growth for the entire year.

Even though the pickup in growth was lower than had been hoped, Commerce Secretary Malcolm Baldrige said the third-quarter rate still showed “our economy is emerging from the doldrums of the past year.”

“With inflation continuing at a modest pace, with the dollar and interest rates down from highs earlier this year and with the inventory correction apparently over, conditions are favorable for continued growth,” he said in a statement.

‘Just Muddling Along’

But Allen Sinai, chief economist for Shearson Lehman Brothers, said the latest GNP report “paints a picture of an economy that is just muddling along.”

Sinai said he believes that the economy has been in a growth recession for the last year and predicted that the unemployment rate, which fell in August, will rise again in September.

Today’s report showed that inflation is remaining well under control. A measure of inflation tied to the GNP rose at an annual rate of just 2.9% in the third quarter, the best performance since a 2.8% rate in the second quarter of 1972.

The report on the “flash” estimate for a quarter which has not yet ended is based on a combination of complete data and estimates. It is often revised substantially, sometimes more than once, as further information comes in.