Economy Jumps 4.8%; Export Growth Cited

The nation’s economy grew at an annual rate of 4.8% in the first three months of the year, the best such record since the boom year of 1984, the Commerce Department said Wednesday.

The new gross national product figure was an increase from a preliminary 4.4% estimate made by the Commerce Department last month. The last economic performance as robust was the 5% growth in the second quarter of 1984.

At the same time, many economists warned of slower growth for the rest of the year. Most economists predict growth of 1% to 2% in the April-to-June quarter.

Much of the improvement in first-quarter growth stemmed from a $4-billion reduction in the estimated size of the nation’s trade deficit. Exports jumped $10.9 billion as measured in 1982 dollars, compared with a $4.6-billion increase reported earlier.

“The upside today is all trade,” said David Wyss of Data Resources Inc., an economic consulting firm in Lexington, Mass. “Both exports and imports were revised upward, but exports were revised more than imports. Real exports have now been increasing for more than six months, at an annual rate of nearly 20%. That shows our exporting industries are at last competitive.”

Another major contributor to first-quarter growth was the tax overhaul law that became effective Jan. 1. Because of the new law, many businesses and private consumers made purchases at the end of 1986 instead of at the beginning of this year, thereby artificially boosting sales in the fourth quarter of last year and requiring businesses to replenish their inventories in the first three months of 1987.

Consumption expenditures by individuals, businesses and government declined by a steep 2.7% in the first three months of 1987. And, in contrast to a $28.5-billion drawdown in inventories in warehouses and car lots in late 1986, the first quarter of 1987 saw a corresponding inventory buildup of $40.7 billion.

Some economists expect businesses to draw down their inventories later in the year rather than order more goods from factories.

Shelves Replenished

But Irwin Kellner, chief economist for Manufacturers Hanover Bank in New York, cautioned that most of the inventory buildup early this year merely replenished shelves that had been depleted at the end of the previous year. Accordingly, he predicted continued economic growth of about 3% for the rest of this year.

“Even if you assume that domestic businesses and consumers are tapped out and no longer buying,” Kellner said, “the fact that the trade deficit has now fallen in real terms for two quarters and is likely to continue to fall means that the output side of the economy will continue to grow.

“And, even if exports don’t keep increasing so rapidly, it means that more of what people buy domestically will be made domestically rather than abroad: enough to lift output and keep us out of recession.”

Trade Protection Opposed

The one danger, Kellner added, is protectionist legislation moving through Congress. He warned that the largely protectionist bill already passed by the House and another awaiting action in the Senate, if enacted, “will put the kibosh on our trade improvement” by inviting retaliation against U.S. goods.

Thanks to the trade improvement, said Bruce Steinberg, a macroeconomic analyst at Merrill Lynch in New York, the upward revision of economic growth for the first quarter was larger than expected.

“There have been steady gains in real net exports since the middle of last year,” he said. “This is a trend, and it is one that we expect to continue. If there is going to be a contraction in consumer spending, business investment and construction, that will have to be made up for by greater exports abroad.”

Slower Growth Seen

But Steinberg noted that the buildup in inventories proved as strong in Wednesday’s Commerce Department report as had previously been estimated. As a result, he said, “there is little change in the outlook: barely 1% growth in the second quarter, and about 2% for the rest of the year.”

In another report that reflected the impact of tax revision, the Commerce Department said corporate profits after taxes fell 3.9% in the first quarter after a 6.3% increase in late 1986. Last month, after-tax profits were estimated to have declined 5.5% in the first quarter.

In a third report released Wednesday, the Federal Reserve Board said that the nation’s manufacturing plants, mines and utilities worked at 79.6% of capacity, up from April’s 79.4% rate.