GNP Revised Downward--Again : Economy Grows Sluggish 0.7% in 4th Quarter
The U.S. economy grew even more sluggishly in the fourth quarter last year than earlier reported, the Commerce Department said Wednesday in another downward revision of its estimate to 0.7% from 1.2%.
Department analysts said the figure was revised mainly because more complete year-end data showed that the nation’s trade balance from October through December was substantially worse than earlier estimated.
The newly reported 0.7% growth rate, the third and final revision for the fourth quarter, caused the department’s Bureau of Economic Analysis to reduce its estimate of growth for all of 1985 to 2.2% from 2.3%--by far the weakest showing since the 1982 recession, when the nation’s gross national product fell by 2.5%.
Leo M. Bernstein, a bureau analyst, said the decrease of half a percentage point in the fourth-quarter estimate was “not much of a revision.”
But he conceded that the revised figures are in stark contrast to the very early “flash” estimate of fourth-quarter growth, which predicted expansion at a 3.2% annual rate when it was issued in mid-December on the basis of mostly preliminary data from October alone.
Since last December, the Commerce Department has announced that it will no longer issue flash estimates, which had been notoriously unreliable. In the past, the flash estimate was issued on the same day as the final revision of the previous quarter.
The department also announced Wednesday that after-tax corporate profits rose 6% in the final three months of 1985 but were down 2.2% for the entire year. The yearly decline was the first since 1982, when profits fell 22.2%. After-tax profits rose 10.9% in 1984 and 21.9% in 1983.
The decline last year emphasized the battering that U.S. industries suffered from foreign competition. However, analysts noted that the 6% rise in profits during the fourth quarter was the strongest increase since the third quarter of 1983 and was a good sign that profits are headed up again.
The rise means that corporations earned after-tax profits at an annual rate of $149.5 billion in the fourth quarter, compared to a $141.1-billion rate in the third quarter.
Despite the economic slump late last year--and in some degree because of it--the Reagan Administration is forecasting a sharp rebound of annual growth to about 4% for 1986. Mainly because of the winter’s collapse in world oil prices, many private economists have begun to raise their own growth estimates for the year, despite recent disappointing reports on the nation’s trade deficit, unemployment, industrial production and other key economic factors.
White House spokesman Larry Speakes said Wednesday that, “despite this downward revision, the current level of economic activity should lead us to optimistic expectations. . . . More Americans are working than ever before and a new mood of optimism prevails in virtually every sector.”
The Commerce Department report Wednesday also showed that exports of U.S. goods grew at an annual rate of 6.6% in the July-September quarter, down from the earlier estimate of 7.4%. Imports expanded by 24.5%, instead of the 18.6% reported earlier.
In other key areas, the economy was slightly better than earlier reported. Final sales, government purchases and business investment increased somewhat over earlier estimates. However, the surge of foreign imports offset those gains.
