Economy Grows as Exports Rise, Imports Decline
The nation’s economy expanded at an unexpectedly solid 3.2% annual rate during the first three months of the year, the Commerce Department said Thursday in a preliminary report that suggests the long-awaited turnaround in the huge U.S. trade deficit is at last beginning.
Exports were up nearly 12% and imports were reported down more than 3%, while the report showed inflation slowing from a 3.9% annual rate in late 1985 to 2.2% last quarter--"the lowest rate in 14 years,” as Secretary of Commerce Malcolm Baldrige put it. He said that “prospects are good” for achieving the Administration’s goal of 4% growth during all of 1986.
A Platform for Growth
At the White House, spokesman Larry Speakes declared that “all the recent signs of an economy gathering steam began to be realized this morning.” He added: “Today’s good news is made even better when you consider the fact that the rebound in GNP growth was accompanied by decreasing inflation.”
Administration officials and private economists reacted cautiously to the encouraging trade news, pointing out that the figures include import statistics only for the month of January and could be revised downward when more complete data is received.
Nonetheless, many government and private economists agreed that the combined effects of lower interest rates, cheaper oil, low inflation and a weaker dollar have built a platform for steady growth for at least the rest of the year.
Housing investment increased 9.7% amid signs that lower interest rates will keep that sector expanding strongly through the year. In addition, personal consumption increased a healthy 4.3%, after an anemic 0.1% increase in late 1985, reflecting the continuing effect of lower interest rates and cheaper oil, economists said.
Before the report was released, some economists had worried that growth might well dip below 1% in the first quarter. That would have triggered a provision of the Gramm-Rudman balanced-budget law requiring Congress to vote on whether to scrap planned budget cuts for at least one year so that decreased government spending would not further slow the economy. This would virtually guarantee another year of massive budget deficits, far above current estimates.
Baldrige pointed to “crosscurrents” and “mixed patterns” in the economy that could show up as weaknesses later on. These include the perhaps ominous fact that 1985’s year-end burst in business investment turned into a steep 13.6% decline in capital spending during the first quarter of 1986. Part of the decline came from cutbacks in oil and gas drilling, which had been widely expected because of the global collapse in oil prices, but it also included a sharp decrease in spending on computers and other business equipment.
Turnaround in Trade
The key statistic, however, appeared to be the hint of a turnaround in the trade picture. Expressed in 1982 dollars, annually adjusted, the U.S. trade deficit was running at a $126-billion annual rate from January through March, contrasted with $140.8 billion in the final quarter of 1985.
Deputy Secretary of Commerce Clarence J. Brown said the reported 11.9% increase in U.S. goods exported abroad will probably stand up as a real trend. He conceded, however, that the reported drop in imports by 3.6%--after an enormous 24.6% increase in the last three months of 1985--might be based on shaky evidence. Only January’s import statistics were available for Thursday’s report.
Robert Ortner, the department’s chief economist, noted that the improvement in net exports, reducing the trade deficit by $14.8 billion in 1982 dollars, contributed just over half of the $28.4-billion real growth in GNP recorded in the quarter. “That’s a significant swing,” he said.
Mostly Favorable Results
Private economists likewise saw mostly favorable results in an admittedly mixed bag.
Douglas Handler of Wharton Econometrics, which is currently forecasting strong 4.2% growth during 1986, was particularly optimistic. He hailed the export-import statistics as a clear sign that “trade is turning around” and found comfort in the personal consumption increase as a sign that Americans “are not yet ready to retrench,” despite the continuing falloff in car sales after an unusual buying spree last fall.
Allen Sinai, chief economist with Shearson Lehman Bros., said he is looking for 3.5% growth during the year. He said the report “generally shows that the economy is perking up.”
Roger E. Brinner of Data Resources Inc. looked to somewhat more sluggish growth for the year, perhaps in the 3% range, but he expressed concern over the “big double-digit decline” in business investment.