Buoyant Economic News Offset by Rise in Inflation, Interest

America’s economy and corporate profits expanded briskly this spring, the government said today, but the news was overshadowed by higher inflation, rising interest rates and a slowdown in home sales.

The Commerce Department said the gross national product, the broadest measure of economic health, rose at an annual rate of 3.3% from April through June despite severe shock from the drought that seared much of the country. The GNP rate of expansion was unchanged from the first quarter.

Without the drought, the GNP would have shot up at a 4.3% annual rate in the April-June period.

Profits Up 11.5%

The government also said after-tax corporate profits shot up 11.5% in the second quarter following a 2.5% rise in the first quarter. The performance was the best since a 14.5% rise in the 1983 second quarter.

But April-June inflation as measured by a GNP price index rose at an annual rate of 5.1%, the fastest increase since a 5.8% rise in the third quarter of 1982, the department said. Higher prices for clothes, food and fuel were blamed for the surge.

Further obscuring the GNP and corporate profit news was that key West European nations raised interest rates today, blaming the stronger U.S. dollar and consequent weakness in their own currencies for the move. The increases signaled another round of higher interest rates worldwide.

Rising interest rates also played a key role in a 5% drop in existing single-family home sales last month, a real estate trade group said today. The National Assn. of Realtors said the decline was partly the result of higher mortgage costs.

Today’s GNP estimate of 3.3% for the second quarter represented an upward revision from a month ago when the government put GNP growth at a lower 3.1% rate during the quarter.

The improvement came from higher spending by the federal government, consumers and businesses than previously estimated.

Allen Sinai, chief economist for The Boston Co., suggested that the Democrats might be able to make some political use of the GNP report.

‘Inflationary Consequences’

“The political debate will more and more be stressing the inflationary consequences of an overheated economy . . . as a result of big deficits and heavy borrowing,” he said. “I’d be surprised if the Democrats didn’t pick up on that.”

Robert Dederick, chief economist for Northern Trust Co. of Chicago, said the economy is “growing much too fast and if it isn’t reined in quickly, it is surely going to mean that inflation will be much more pronounced,”

“It is nice to grow fast in the early stages of an expansion when you have a lot of unemployment, but at this stage we just can’t afford it,” he said.

In good news for Republican presidential prospects, however, economists see no likelihood that economic growth will slow appreciably before the Nov. 8 election.

Many analysts believe the economy in the current quarter may be expanding at an even faster rate than in the spring.

The Federal Reserve since March has been pushing interest rates higher to dampen demand, but many economists are worried that unless growth slows in the coming quarters, the central bank will have to clamp down even harder and risk pushing the country into a recession in 1989.