Economy Shows Hefty 3.3% Jump : Spending Fuels Gain; Pace Below Reagan Prediction

The nation’s economy, fueled by stronger spending by consumers and government, grew a healthy 3.3% during the third quarter but the pace remained below the rebound predicted by the Reagan Administration, the Commerce Department reported today.

The figure for the gross national product for the July-September quarter was significantly more than the 2.8% flash estimate issued last month by government economists.

But the combination of the weak 0.3% advance in the first quarter and a slight rebound of a revised 1.9% in the second quarter means that the January-to-September period expanded by only 1.8%.

Needs 6.7% Rate

To reach the Administration’s forecast for a 3% growth rate for 1985, the fourth quarter would have to soar at a blistering 6.7% rate, a Commerce Department economist said.

Commerce Secretary Malcolm Baldrige told reporters that he expects growth in the fourth quarter to be “over the 3% level” and that “we’ll see this kind of growth continue.” But he acknowledged that meeting the Administration’s hopes of a major fourth-quarter increase would be difficult.

In a statement accompanying the GNP figures, Baldrige said: “The economy’s star performer last quarter was the consumer. Outlays for personal consumption rose strongly, accounting for the lion’s share of growth in GNP.”

But David Wyss, an economist with Data Resources Inc. in Lexington, Mass., said he saw no prospect that the fourth quarter “is going to grow that much.”

Housing Starts Down

A $10.4-billion drop in business inventory investment and a 9.3% decline in housing starts for September, reported by the Census Bureau today, “suggest weak investment for the next three months. The home buyer, the business investor is a bit scared, they’re backing away from spending,” Wyss said.

“I see very little prospect for strong growth in the next few months,” he added.

The strong increase in spending coupled with weaker disposable income brought the personal saving rate to a 35-year low of 2.9%, Baldrige said.

The gross national product, the broadest measure of the nation’s economic health, increased by $13.5 billion in the third quarter. Personal spending climbed 4.8% with a substantial 20.5% rise in spending on durable goods such as cars, during a period of low-cost financing, and home appliances.

Increased Auto Sales

Previous economic reports for the third quarter showed large increases in spending in auto sales as dealers tried to clear 1985 inventories.

Government spending also increased beyond expectations, showing a 16.1% rise overall, with federal spending climbing 33.4% and state and local governments increasing their spending by 5%.

While the economy strengthened in the July-September quarter, many private economists are worried that growth will slacken again in the final three months.

They base their concern on the belief that little has been done to solve the country’s biggest problem, a flood of foreign imports robbing American manufacturers of sales.