Economic Growth Fastest in 2 Years at End of 1987

The U.S. economy grew at a robust 4.5% annual rate in the final three months of 1987, the fastest pace in almost two years, the government said today.

The Commerce Department’s estimate of growth in the gross national product, the total output of goods and services, represented an upward revision from a month ago, when the GNP was put at a slightly slower 4.2% growth rate.

President Reagan, boasting about the country’s longest peacetime recovery on record, had given a small preview of today’s good news during his Wednesday night news conference. Reagan, who is briefed on the economic figures in advance, said they would contain “a little good news.”

Economic expansion at such a rapid clip would normally bring cheers, but the lopsided nature of this increase is instead raising concern among private economists that the recovery will weaken considerably in the first half of 1988.

Ominous Combination

Analysts base this forecast on the fact that three-fourths of the $42 billion in growth in the October-December quarter came from a $32.1-billion rise in business inventories, which came as consumer spending was falling at its fastest rate in more than seven years.

This ominous combination means that production will have to be cut back sharply in coming months to work down the excess inventories.

A buildup of inventories and weak consumer spending can trigger a recession, but most economists believe that the country will be able to escape a downturn this year although they are forecasting very weak growth during the first six months.

In addition to the big rise in business inventories, other sources of strength included a 13.4% increase in government spending and an 8.1% increase in housing construction.

Inflation Up Slightly

The rapid rate of growth in the fourth quarter was accompanied by little pickup in inflation. A price index tied to the GNP was rising at an annual rate of 3.7% in the fourth quarter, compared to a 3.4% increase in the third quarter.

The 4.5% increase in economic growth on an annual basis followed a gain of 4.3% in the third quarter and was the fastest advance since a 5.4% rise in the first quarter of 1986.

The fourth-quarter gain boosted growth for the year to 3.9%, when measured from the end of 1986, up slightly from the 3.8% estimate made a month ago.

The Reagan Administration is predicting that growth this year will slow to a rate of 2.4%.