Economy Up 2.3% in 1985, Far Short of Reagan’s Goal : Sluggish Growth Seen This Year

The U.S. economy grew a disappointing 2.3% in 1985, far short of the 3% growth target of the Reagan Administration and the slowest expansion in the gross national product since the recession year of 1982, the Commerce Department reported today.

The figure, reflecting a sluggish economy and a growing trade deficit, was far behind the robust 6.6% growth recorded in 1984.

Commerce Secretary Malcolm Baldrige said this year’s results should be better and predicted a 4% growth rate for 1986.

“The index of leading indicators for December, which will be released later this month . . . looks strong,” Baldrige told reporters. “Thus, the economy’s upward momentum should give us a good start into 1986. The economy is in better shape today than it was a year ago.”

Inflation Held to 4%

In a separate report, the government said that despite a year-end surge in food and fuel prices, consumer prices rose only 3.8% last year, meaning inflation was held to 4% or lower for the fourth consecutive year.

Some private economists said the twin reports pointed toward another year ahead of sluggish growth with moderately rising prices.

“We think 1986 will be a continuation of the pattern we had in 1985,” said Lawrence Chimerine, president of Chase Econometrics, a private forecasting firm. “There is no danger of a recession, but we’re not likely to see an economic boom either.”

The Labor Department’s consumer price index, which is based on the prices for a variety of goods and services that people buy for day-to-day living, was 4% in 1984, 3.8% in 1983 and 3.9% in 1982--well down from a high of 13.3% in 1979.

Prices Climb 0.4%

For December, consumer prices rose 0.4%, a slower rate of increase than November’s 0.6% rise but a bit ahead of the year’s average monthly increase of 0.3%, the department said.

Fuel price increases began to abate in December, and government analysts said they expected even further drops in gasoline and heating oil in the months to come following a decline in world crude oil prices.

Meat prices, which had shot up in November, rose far less rapidly in December, although skyrocketing prices for fresh lettuce and tomatoes kept food prices relatively high through the end of the year, the department said.

The separate report on the gross national product reflected a downward revision of one-tenth of a percent from the 2.4% estimated last month.

Spurt Never Came

The GNP revision stemmed from a higher estimate of the country’s trade deficit and increased inflation in the fourth quarter of the year. The end-of-year economic spurt forecast by the Administration never materialized.

While the Administration is projecting a 4% increase in the GNP this year, private analysts are predicting growth closer to the 3% level.

Last year’s 2.3% growth in the GNP marked the slowest pace for the economy since a 2.1% decline in growth during the recession year of 1982.

A measure of inflation tied to the GNP, the fixed-weight price inflation index, showed an increase of 4.5% for October, November and December--the highest for a calendar quarter since the first quarter of 1984.

For all of 1985, however, the GNP-inflation index rose 3.6%, the best annual performance since a 3% rise in 1967--and close to the 3.8% overall consumer price index.

The consumer price index also showed a bulge in inflation at year’s end. If the December index of 0.4% continued for the next 12 months, it would translate into a 5.3% rate of inflation.