Economy Up at 3.6% Rate in 1st Quarter : Robust Rise Prompts Administration to Make Forecast Rosier

The U.S. economy, fueled by an export-driven manufacturing boom, grew at a robust 3.6% rate in the first three months of 1988, prompting the Reagan Administration to make what was once considered too rosy a forecast even rosier.

The Commerce Department said the gross national product, the broadest measure of economic health, grew to a seasonally adjusted annual level of $3.915 trillion in the January-March period.

Strong first-quarter growth has prompted the Reagan Administration to boost its 1988 projection for GNP growth to 3.5%. At the start of the year, the Administration had predicted that the economy would grow 2.9% in 1988, the same rate of growth as in 1986 and 1987.

At the time, many private economists were more pessimistic but they have since scrambled to increase their predictions.

“Our rosy forecast wasn’t rosy enough,” said Beryl W. Sprinkel, chairman of the presidential Council of Economic Advisers. “The economy is doing better than even we expected.”

Downward Revision

The latest first-quarter numbers were a modest downward revision of a previous estimate of GNP growth in the first quarter. A month ago, the government put GNP growth at 3.9%. However, in April, the initial estimate was a much lower 2.3%.

Today’s revisions show that non-military spending by the federal government was $3.8 billion less than previously thought. Most of that was accounted for by a dip in purchases of surplus farm commodities.

Consumer spending, although up a moderately strong 3.8%, was weaker than the previously estimated 4.3% growth. Much of that was due to somewhat less auto buying than first thought.

Immediately after the October stock market crash, many economists feared that the shock to consumer confidence would topple the country into a recession.

Consumer spending did post a rare 2.5% decline in the fourth quarter but it has come back in the first three months of this year.

Rising Export Sales

The engines driving the 6-year-old economic expansion now, even more than consumer spending, are rising export sales spurred by the cheaper dollar and the consequent surge in modernization and expansion spending by businesses.

Exports of goods and services were up a strong 22.8% in the first quarter. Business investment in capital equipment shot up 33.1%, the fastest rise since the first year of the recovery from the 1981-82 recession.

The growth has buried fears of another recession, but now financial markets have become concerned that the economy is expanding so rapidly that it will rekindle inflation.

In a separate report, the Commerce Department said after-tax corporate profits fell 1% in the first quarter, the worst performance in a year, and one many analysts fear will boost inflation.