U.S. Economy Jumps Back--Fourfold : GNP Grows at Brisk 3.2% Annual Rate During 1st Quarter

The U.S. economy showed a fourfold rebound in growth from January through March, helped out by the best news on inflation in almost two decades, the government reported today.

The Commerce Department said the gross national product, the broadest measure of the economy’s health, grew at a 3.2% annual rate from January through March, the best growth rate in a year and more than four times the pace of activity during the last three months of 1985.

That growth exceeded most estimates on Wall Street and dashed hopes there that the Federal Reserve Board would further cut its discount rate, which would push other interest rates down, making stocks a more attractive investment.

At the White House, presidential spokesman Larry Speakes said, “All the recent signs of an economy gathering steam began to be realized this morning” with the news on the GNP.

Commerce Secretary Malcolm Baldrige said the economy managed the 3.2% growth despite a wide number of crosscurrents.

Cites ‘Mixed Patterns’

He said residential investment and consumer spending combined with the big drop in the trade deficit to push up growth while business capital spending fell sharply due to cutbacks in the purchase of computers, trucks, and oil and gas drilling equipment.

“Despite these mixed patterns, prospects are good that we can achieve 4% real growth over the four quarters of 1986,” Baldrige said, referring to the Administration’s prediction of growth this year.

The upturn in growth was aided by a sharp drop in inflation. Prices, as measured by an inflation index tied to the GNP, were rising at an annual rate of just 2.5% in the first three months of the year. This was the slowest rate since no increase at all in the second quarter of 1967.

The 2.5% rise was down from an annual rate of change of 3.3% in the final three months of 1985.

The slowdown in inflation mirrors other price gauges that have shown sharp declines in oil prices this year.

Trade Deficit Improves

The first-quarter GNP growth of 3.2%, after adjusting for inflation, was at the fastest pace since a 3.7% growth rate in the first three months of 1985. By the final three months of last year, growth had slumped to a barely perceptible 0.7% rate as the country was battered by a soaring trade deficit.

The big improvement in the GNP for the first three months of the year came from a turnaround in trade. The trade deficit, which was deteriorating at an annual rate of $21 billion in the final three months of the year, was showing an improvement at an annual rate of $14.8 billion from January through March.

In addition to the help from trade, other positive factors for GNP growth in the first quarter were consumer spending and residential construction.

The GNP report said personal consumption spending was rising at an annual rate of $24 billion in the first quarter, contrasted with a tiny $800-million rate of increase in the final three months of the year.

The pickup in spending was concentrated in purchases of non-durable goods. Purchases of durable goods, including cars, fell.