GNP Soars at Surprising 3.9% Annual Rate in First Quarter
The U.S. economy grew at a surprisingly rapid annual rate of 3.9% from January through March, much better than previously believed, because of the biggest decline in the trade deficit in eight years, the government reported today.
The Commerce Department said expansion of the first-quarter gross national product, the broadest measure of economic health, had been put at 2.3% a month ago.
About four-fifths of the improvement from that first estimate came from a narrowing of the foreign trade deficit, which shrank in inflation-adjusted terms at an annual rate of $16.7 billion in the first three months of the year.
This represented the sharpest narrowing of the trade deficit since a $24.8-billion drop in the first quarter of 1980.
The trade improvement had been estimated as a much smaller $3.6 billion last month, but that was before the government had data for exports and imports in March, a month when the trade deficit shrank sharply because of a record level of exports.
Economists had been expecting an upward revision in the GNP report, but the 3.9% growth rate was far above most estimates. The consensus outlook had expected a GNP increase of 3.2%.
“The economy is on a roll. It is amazingly strong and resilient for such an aging expansion,” said Allen Sinai, chief economist for the Boston Co.
Fastest Growth Since ’84
Sinai said he is revising his estimate of growth for all of 1988 up to 3.5%, which would be the fastest growth pace since 1984.
The economic performance this year is far different from what was feared in the wake of the stock market crash last fall. At that time, many economists said the country could well topple into a recession this year caused by consumer fears about the stock market downturn.
But the new GNP report did not support any inflation worries. The revised report showed that an inflation index that measures prices of a selection of goods rose at an annual rate of just 1.7% in the first three months of the year, down from a 2.7% rate in the fourth quarter. It was the lowest rise in inflation since late 1986.
In the first quarter, consumer spending bounced back, rising at an annual rate of 4.3%, with about half of that increase attributed to stronger car sales.
Business investment for capital equipment shot up at an annual rate of 32.8% in the first quarter, the fastest advance since the first year of the recovery from the 1981-82 recession.
Analysts said much of the investment boom was directly tied to trade improvements as American companies have rushed to expand production facilities to meet the surge in export demand.
“Businesses apparently decided that the market crash would not affect them because they were depending on an export boom this year, not increased domestic demand,” said Michael Evans, head of a Washington forecasting firm.
