Economy Slowed at End of 1986 : 1.3% 4th-Quarter Growth Rate Holds Year’s Rise to 2.5%

The U.S. economy grew at a sluggish 1.3% annual rate in the final three months of 1986, even weaker than previously thought, the government reported today.

The Commerce Department said the October-December change in the gross national product, the broadest measure of economic health, was the weakest showing for the economy since last spring, when growth slumped to 0.6%.

The fourth-quarter growth rate represented a downward revision from a preliminary report a month ago which had put growth at an annual rate of 1.7%.

The weaker growth was accompanied by a slowdown in inflation, with an inflation index tied to the GNP rising at an annual rate of just 0.7%, the best showing in almost 20 years.

No Change From Estimate

For the entire year, the economy grew 2.5%, the slowest advance since an outright decline in the recession year of 1982. This represented no change from an estimate a month ago.

The 1.3% GNP growth at the end of last year was less than half the growth rate turned in from July through September, when the economy expanded at a 2.8% rate.

The third-quarter level had led the Reagan Administration to forecast that the economy was finally rebounding after two years of sluggish activity.

This hope was pinned on an expectation that the huge U.S. trade deficit, which has forced layoffs and cost thousands of manufacturing jobs, would show improvement.

Consumer Spending Weakness

The trade deficit did improve but other sectors of the economy weakened. The biggest weakness was in consumer spending, the mainstay of the 4-year-old recovery.

Personal consumer spending, which accounts for about two-thirds of overall economic activity, fell 0.1% in the October-December period after two consecutive quarters of increases above 6%.

The improvement in the trade deficit came as exports shot up by 13.6% while imports edged down 0.2%.

The 0.7% estimated rate of inflation in the fourth quarter was down sharply from a 3.6% increase in the third quarter and was the slowest advance since there was no gain at all in the second quarter of 1967.

1.9% Pre-Inflation Rise

The various changes left the GNP at an annual rate of $3.698 trillion in the fourth quarter. Before adjusting for inflation, the GNP rose 1.9% in the final quarter.

The main change between the initial GNP estimate and today’s revision came from a drop in business inventories, which fell by $24.1 billion rather than by an earlier estimate of $11.2 billion.

This revision, however, is likely to spell greater strength in coming months as businesses step up production to restock depleted inventories.