GNP Shoots Up at 4.3% Rate--Fastest Advance in 3 Years : But Analysts See Reversal in 2nd Quarter

U.S. economic growth shot up at an annual rate of 4.3% in the first three months of 1987, the fastest growth in almost three years, the government reported today.

However, the surprisingly strong rise in the gross national product, which came almost entirely from a buildup of business inventories, masked substantial weakness, analysts said, and is likely to be reversed in the current quarter.

The Commerce Department said the GNP performance was up substantially from a weak 1.1% rise in the October-December quarter last year and was the fastest expansion rate since the economy grew at a 5% pace in the second quarter of 1984.

Inflation Rises 3.6%

The pickup in economic growth was accompanied by a rise in inflation. An inflation index tied to the GNP rose at an annual rate of 3.6% in the first three months of the year, up from a 2.7% rise in the fourth quarter and the biggest jump in prices since a 4% rise in the first quarter of 1984.

The increase in prices came from a sharp rise in energy costs, which had been falling for most of 1986.

While the GNP growth figure was the best showing in almost three years, analysts discounted the rise because it was concentrated almost solely in a rebuilding of depleted business inventories.

Inventories grew by a giant $59.5 billion in the first three months of the year, reflecting a big rise in auto stockpiles. The inventory restocking was occurring, however, at a time when final sales were dropping 2.2%--the first quarterly decline since the third quarter of 1982, the low point of the last recession.

Sluggish Activity Expected

The combination of falling sales and rising inventories is expected to translate into sluggish activity in the current quarter as factories are forced to cut back on production to reduce unwanted stockpiles.

The big jump in economic growth in the first quarter following the weak fourth quarter continued a seesaw pattern of the last two years as the economy has been stuck in a pattern of essentially sluggish growth, held back by a huge U.S. trade deficit.

Trade performance was the one bright spot in today’s report.

The trade deficit shrank by $13.8 billion in the first quarter. The improvement came from an 11.1% decline in imports, which offset a 1.6% drop in exports.

Volume of Imports Shrinks

While in dollar terms imports have continued to rise, the increase has reflected higher costs brought on by a weaker dollar. Today’s GNP report showed that the actual volume of imports shrank substantially in the first quarter.

The Reagan Administration is counting on an improvement in the trade deficit this year if it is to reach its growth forecast of 3.2% for all of 1987.

Outside of the jump in inventories and the improvement in trade, the GNP report showed weakness in most other areas in the first quarter. Personal consumption spending, which accounts for about two-thirds of all GNP activity, edged down 0.4% in the first quarter, the second consecutive quarterly decline.

Housing construction fell 7.2% and business investment dropped an even sharper 12.8%.