Economy Grows at 2.4% Annual Pace; No Boom Is Seen

The economy shook off an early lapse and grew at a respectable 2.4% annual pace from July to September, the Commerce Department said Wednesday, but analysts said the figures offer little hope that the sluggish expansion of the last two years can rouse itself into an actual boom.

Several said the numbers foreshadow an end to the record consumer spending that has kept the economy plugging along while industrial investment and other business sectors have sputtered.

The analysts were only slightly heartened by evidence that inventories of goods had finally declined, meaning that idle factories soon may have cause to crank up their production lines again.

“We’re not talking any boom,” said Tom Megan, an economist with Washington-based Evans Economics Inc., echoing the consensus view of the Commerce Department figures. “But we’re not talking a recession, either.”

The preliminary estimate of the gross national product, the broadest gauge of national production, showed that the economy grew at an annual pace of $3.68 trillion in the third quarter. That was up $21.9 billion in inflation-adjusted 1982 dollars from the April-June quarter, when the rate of expansion was a pallid 0.6%.

Such preliminary estimates usually change--sometimes wildly--when final figures are compiled later. But the 2.4% rate for the third quarter is well below the Reagan Administration’s 3.2% year-end target for GNP growth, and it means that the economy would have to expand more than twice as fast in the rest of 1986 for that goal to be met.

Few professional forecasters saw signs of that, though most predicted slightly better fourth-quarter growth.

Booming Auto Sales

As in the previous quarter, growth resulted largely from booming auto sales, pumped up by discount-financing gimmicks from Detroit. Consumer purchases of cars and trucks accounted for almost four-fifths of a $30.2-billion jump in purchases of durable goods, big-ticket items such as refrigerators, washers and autos.

Federal spending was virtually flat. So was spending for new factories and equipment, although home-building investment rose slightly.

The strong close-out sales of 1986-model cars helped clear out business inventories, which dropped $4.5 billion in 1982 dollars, the first decline in three quarters.

“Consumption was boosted, but inventories were drawn down. And that’s positive for the economy,” Megan said.

Other positive news was hard to find. Exports of American-made goods jumped $13.1 billion in “real” 1982 dollars, compared to an actual decline in the last quarter. But imports from abroad, up by $23.9 billion, more than offset the gain.

Growth of Deficit Slows

Administration economists cheerily noted that the deficit was growing at a slower pace than in previous quarters, but no one else saw cause for joy in that.

“I’m not aware of the slightest shred of evidence that the trade deficit picture has turned around,” said economist Ira Kaminow of Washington-based Government Research Corp. In fact, he said, the figures are even worse than they appear because the cost of the single biggest import--oil--has dropped dramatically since 1985.

That means that imported manufactured goods are wholly responsible for the growth in the deficit, despite predictions that the stabilizing value of the dollar would reduce the price advantage of foreign products.

Consumer spending, the economy’s bright spot in the last 2 years of slow growth, also shows signs of tailing off early next year, Kaminow and others said. The personal savings rate dropped to 2.9%, the lowest level since 1950, as many households shelled out for new cars.

One More Spending Shot

Analysts said consumers may give the economy one more spending shot this fall as families load up on expensive products, seeking to beat the new tax law’s 1987 phase-out of consumer interest and sales tax deductions.

But those artificial spending highs will not last, economist Jerry Jasinowski of the National Assn. of Manufacturers said. “Consumers will be forced to retrench early (in 1987),” he said. “Paradoxically, a more rapid pace of expansion in late 1986 only heightens the likelihood of a decline in economic activity in 1987.”

Kaminow, noting that some banks and stores are seeing a rise in consumer loan defaults, said middle- and low-income households “may be coming to the end of their leash in terms of consumption.”

More optimistic was Irwin Kellner, vice president and chief economist at Manufacturers Hanover Bank in New York. Third-quarter spending figures show that the consumer “is alive and well,” he said.

Stronger Growth in 1987

The battered oil, farm and manufacturing sectors probably have weathered the worst of their problems and will probably make 1987 a year of stronger growth, Kellner said.

The White House, milking the political value of the GNP figures two weeks before a crucial congressional election, clearly agreed. The numbers “suggest strong economic performance in the months ahead,” said Beryl W. Sprinkel, chairman of the President’s Council of Economic Advisers.

The Democratic Policy Committee, a Senate group, was equally mindful of the elections. “Recent economic reports fail to suggest that any significant pickup is on the way,” Minority Leader Robert C. Byrd (D-W.Va.) said.