GNP Up at 2.3% Rate, Eases Fears : 1st-Quarter Surge Dispels Talk That Recession Is Near

The U.S. economy, shrugging off the effects of the October stock market collapse, grew at a respectable 2.3% annual rate in the first three months of 1988, the government said today.

The Commerce Department, issuing its first look at overall economic performance this year, said the increase in the gross national product was propelled by a strong increase in consumer spending and the biggest surge in business investment in more than four years.

Economists said the balanced growth was good news for Republicans in an election year and should bury lingering fears that the 508-point drop in the stock market on Oct. 19 would topple the country into a recession.

Administration Boasts

The Administration wasted no time in boasting about the GNP report.

“So much for the recession that was supposed to occur in the first quarter,” Commerce Under Secretary Robert Ortner said at a briefing for reporters.

In further good news, the growth was accompanied by a slowdown in the rate of inflation, with a price measure tied to the GNP rising at an annual rate of 2.4%, down from a 2.7% increase in the fourth quarter. This slowdown should help allay fears that stronger consumer demand would push up prices and force the Federal Reserve Board to raise interest rates to cool off demand.

The GNP grew at a much faster 4.8% rate in the October-December quarter, but analysts said that growth masked some dangerous imbalances that were not present in the first-quarter report.

Fourth Quarter Reversed

Almost all of the fourth-quarter increase in GNP wound up as unsold inventory sitting on shelves. At the same time, consumer spending was taking a rare nose dive, falling 2.5%, the biggest drop in seven years.

This pattern was reversed in the first quarter with business inventories, which had risen by $39.4 billion in the fourth quarter, falling $13.2 billion in the first quarter, indicating a success by businesses in reducing swollen inventories.

Much of the success in working down the inventory bulge occurred in auto showrooms, as dealers were aided by a new round of sales incentives.

This helped boost consumer spending by $23.6 billion in the first quarter, a 3.8% annual rate of increase. The report said more than half of that growth came in auto sales.

Investment Soars

Business investment for capital equipment shot up at an annual rate of 32.5% in the first quarter, the fastest advance since a 39.5% increase in the fourth quarter of 1983.

In other good news, the country’s trade deficit, after removing the effects of inflation, narrowed by $3.6 billion in the first quarter, continuing the trend of improvement that began in mid-1986.

The Administration, which is forecasting that GNP will grow 2.9% for the full year, is counting on further improvements in the trade deficit to supply almost half of GNP growth this year.