Economy’s Growth Slows at End of ’86 : Consumer Spending Weakness Offsets Trade Deficit Gain

Economic growth sagged in the final three months of 1986, inching upward at an annual rate of only 1.1% percent--even weaker than previously thought, the government said today.

The Commerce Department reported that a long-awaited improvement in the trade deficit in the October-December quarter was offset by weakness in consumer spending.

President Reagan, asked about the report during a picture-taking session with senators at the White House, said only, “It wasn’t all that bad.”

For all of 1986, the gross national product grew just 2.5% as the United States finished its poorest year economically since the last recession, in 1981-82.

Revised Estimate

The new GNP report represented the second downward revision in the growth estimate for the fourth quarter. Two months ago, the government had estimated that the GNP grew at an annual rate of 1.7%, a figure that was reduced last month to 1.3%.

Today’s downward revision in economic activity came from a $4.1-billion larger decline in business inventories than had been reported a month ago and even weaker consumer spending than had been thought.

The government reported that personal spending fell by 0.4% at an annual rate in the final quarter.

The rare decline in consumer spending, which accounts for two-thirds of overall economic activity, is a particularly worrisome sign for growth this year.

Negating Benefits

Some economists contend that weakness in this area will negate much of the benefit from an expected improvement in the nation’s trade deficit this year. Many analysts therefore are forecasting that economic growth this year will actually be lower than in 1986.

This view is sharply at odds with that of the Reagan Administration, which is predicting that the economy will rebound to a growth rate of 3.1% this year as a hoped-for $30- to $40-billion improvement in the trade deficit adds significantly to the domestic economy.

John M. Albertine, vice chairman and chief economist for Farley Industries of Chicago, said the poor fourth-quarter figures showed that the consumer “is too burdened with debt to be a major factor in boosting the economy in the short run.” He said adding to the sluggishness are the huge trade deficit and declines in business investment because of the new tax law.

Weak Showing

The 1.1% growth rate in the fourth quarter was down sharply from a 2.8% increase in the July-September quarter and was the weakest showing since the economy grew at a barely noticeable 0.6% in the second quarter of 1986.

Many economists, noting healthy employment gains, believe that economic growth is picking up in the current January-March quarter, with the strength coming from a drive by businesses to restock depleted inventories.

But they believe that consumer spending has remained weak during the first three months of the year and that this will translate into weaker growth in the April-June period.