Output Rose Only 1.3% Last Quarter, Agency Now Says

The Commerce Department reported Thursday that the nation’s economy grew more slowly in the last three months of 1986 than previously estimated. But the White House and independent analysts said the government’s new fourth-quarter figures also point to encouraging signs of future vitality.

In its revised report on the economy for October through December, the department said the gross national product--the nation’s output of goods and services--grew at an annual rate of only 1.3%, or $11.9 billion, in the fourth quarter to a level of $3.698 trillion. A preliminary report a month ago put the increase at 1.7%.

The department said the new, lower figure--less than half the growth rate of 2.8% registered in the previous quarter--resulted mainly from a steep decline in business inventories, which fell by $24.1 billion rather than the $11.2 billion estimated a month ago. At the same time, the government revised domestic spending figures upward slightly and noted stronger foreign trade than estimated a month ago.

Weakest Year Since ’82

Despite the revisions, Commerce Department officials said the estimated growth for the entire year was still 2.5%. Although unchanged from the preliminary estimate a month ago, this makes 1986 the weakest year for the economy since the recession year of 1982.

Presidential spokesman Marlin Fitzwater said the Administration is “encouraged” by the underlying trends, which he said “suggest the possibility of stronger growth in the first quarter of 1987.”

A variety of private economic analysts tended to agree, noting that the reasons for downward revision of the GNP pointed to positive features in the economy that are more important than the fall itself.

“The lower inventories are actually good news for the economy,” said David Wyss, chief financial economist at Data Resources Inc. in Lexington, Mass. “You have a lot of empty shelves to refill.”

Estimates of 3% Growth

Wyss said this should begin to stimulate production by the second quarter of the year, if not earlier. He said estimates of overall economic growth this year of 3% still seem “very reasonable.” The Administration has forecast a 3.2% rise in the GNP, the broadest indicator of the nation’s economic vitality, for 1987.

Among other analysts, Irwin Kellner, chief economist at Manufacturers Hanover Bank in New York, called the Commerce Department’s revised report “good news” for the economy “because it shows that inventories were reduced much faster than originally thought in the fourth quarter.”

“You can expect a rebuilding (of stocks) in the current quarter, and that will be added to the GNP,” Kellner said.

While Kellner forecasts economic growth of 2% to 3% in the first quarter of this year, Douglas Cliggott, a senior economist at Merrill Lynch in New York, suggested a more conservative estimate of 2%--up from an earlier prediction of 1.6%.

‘Production Is Up’

“What appears to be happening is that industrial production is up but demand is still weak,” Cliggott said. “So production is going into inventories and overseas, as export demand continues to show an encouraging trend. Sustained export growth would stimulate jobs and production.”

The Commerce Department said a previously noted falloff in imports in the last quarter of 1986 was $6.6 billion greater on an annual basis than it had estimated earlier and that the trade deficit was $4.5 billion lower. The new figures show that exports rose 13.6% in the last three months of the year, while imports fell by 0.2%.

Although this will do little to narrow a trade deficit currently estimated at $170 billion, private analysts stressed that the trend is now positive. While cautioning that it is still too early to conclude that a long-term turnaround has been achieved, they said it appears that the long fall of the dollar on world currency markets--rendering American goods and services cheaper in foreign markets and imports more expensive for Americans--is beginning to have an effect on the trade deficit.

“It shows the prolonged decline in the value of the dollar has finally taken hold,” Kellner said.

Real Final Sales Up 4%

Among other fourth-quarter figures refined by the Commerce Department’s Bureau of Economic Analysis, real final sales--a measure of domestic demand--rose by 4% or $36 billion, compared with a 4.5% or $40.4-billion increase in the third quarter of 1986. Although the White House statement cited that as a positive trend, the Commerce Department said the fourth-quarter growth resulted mainly from a steep increase in purchases of farm products by the government’s Commodity Credit Corporation.

When purchases by the CCC are excluded from the figures, the category of final sales grew only 1.2% or $11.3 billion in the last quarter, down sharply from a rise of 5.3% or $47.5 billion in the third quarter.

Weaker overall growth in the economy in the last three months of the year was accompanied by slowing inflation, as measured by the GNP price index. The figure of 0.7% was said to be the lowest quarterly figure in almost 20 years.