Economy Up at Modest 2.9% Rate; ’86 Outlook in Doubt : Revised Figure Sharply Below Earlier Estimates

The economy grew at a moderate annual rate of 2.9% in the first three months of the year, a sharp downward revision from earlier estimates, and analysts said the figure throws into doubt the Reagan Administration’s optimistic forecast for the entire year.

The Commerce Department said in its report today that the performance of the gross national product, the broadest measure of economic health, was only slightly better than for all of last year and more than 1 percentage point less than the Reagan Administration’s forecast for growth of 4% for all of 1986.

The new estimate also marked a big downward revision from just a month ago, when the Commerce Department reported that the economy had expanded at a 3.7% rate in the January-March quarter.

While estimates of economic growth were weaker, the news on inflation remained upbeat. The Commerce Department said a price measure tied to the GNP rose at an annual rate of 2.5% in the first three months of the year, the slowest pace in almost 14 years.

2nd-Quarter Predictions

While many analysts believe that growth will improve in the second half of the year, they say the country will probably have to endure weak growth through the second quarter. Some analysts say growth from April through June will probably dip below 2%.

Economic growth for all of last year was 2.2%.

The prolonged weakness is coming from lackluster consumer demand, continued weakness in industrial America and a huge slump in oil and gas drilling caused by the fall in oil prices.

The Labor Department reported earlier that continued job losses in oil and manufacturing pushed the nation’s unemployment rate to 7.3% in May as the number of Americans out of work rose by 212,000.

Estimate Due in July

This weakness is expected to show up in weak GNP growth in the April-June quarter. The government will make its first estimate of growth for this period next month.

In another sign of weakness, the Commerce Department revised an earlier estimate on corporate profits after taxes to show them falling by 6.6%--the biggest decline in four years. Earlier the department had put the decline at 4.9%.

The GNP report showed that the economy grew by $26.9 billion in the first quarter, $6.6 billion below last month’s estimate.

The department said the main reason for the revision was a weaker trade performance. The trade deficit was estimated to be growing at an annual rate of $138.1 billion in the first quarter.

Business Inventories

First-quarter strength was found in the growth of business inventories, with much of that increase coming from an unwanted buildup in unsold cars. Analysts have said this inventory growth will subtract from second-quarter GNP performance as auto companies and other businesses cut back on production in order to work down stockpiles.

A big drag on the economy in the first three months of the year was a cutback in business investment spending, which was falling at an annual rate of 13.3%.