Annual Growth Rate of GNP Is Trimmed to 3% in Second Quarter

The U.S. gross national product grew at a 3% rate in the second quarter, falling below previous estimates and the 3.4% first-quarter pace, the government said Tuesday.

The revised figure from the Commerce Department was just below August’s estimate of a 3.3% annual rate for the April-through-June GNP, the country’s total output of goods and services after accounting for inflation.

While it showed a slowing of the economy that may ease recent concerns about overheating, enthusiasm was dashed by two inflation gauges issued at the same time by the department that showed more severe price gains than the last report.

The GNP implicit price deflator, a broad measure of inflation, rose at a 5.5% annual rate in the second quarter instead of 5.1%. The GNP fixed weights price index, regarded by many economists as the more accurate inflation measure, jumped to a 5.0% rate instead of the 4.7% estimated earlier.

The figures showed a sharp surge from the first quarter of the year, when the GNP price deflator rose at a 1.7% rate and the fixed weights index rose at a 3.5% pace.

However, the White House said the upward revisions did not affect its view that inflation remains under control.

Next Estimate Oct. 26

“The second-quarter inflation rate was influenced by the drought, which is a one-time occurrence, and by energy prices, which are now falling,” White House spokesman Marlin Fitzwater told reporters. “These facts, plus the moderating growth rate, point to inflation remaining low and under control.”

Tuesday’s report was the final revision of the second-quarter GNP and economists now are focusing on the economy’s performance in the current July-September quarter, the first estimate of which will be issued on Oct. 26.

Although the upward revisions to the inflation gauges were relatively minor, economists said they show that the pick-up in price increases is likely to continue through the year.

“It’s a small revision, but it’s a number you don’t ignore,” said Donald Ratajczak, director of economic forecasting at Georgia State University. “So the third quarter could be a little bit higher than we thought.”

“We expect inflation to continue to accelerate through 1989,” added economist David Wyss of Data Resources in Lexington, Mass. “In fact, the worst inflation numbers will come in the first quarter of 1989.”

In another government report, the Commerce Department said after-tax profits at corporations surged 8.9% in the second quarter to an annual rate of $162.7 billion, up from a 2.5% annual rate in the first quarter. It was the most profitable quarter since the July-September period of 1983.

Tuesday’s report represents a downward revision from an estimate last month of 11.5%. Still, it was the sharpest rise in after-tax profits since an 11.4% gain in the third quarter of 1983.

‘Two Worlds’

Bruce Steinberg, an economist with Merrill Lynch in New York, predicted that earnings for the quarter ending this month would remain strong, but not as strong as the second quarter. Rising prices paid to suppliers likely will cut into companies’ profit margins, he said.

“You’re almost looking at two different worlds. Corporate earnings in the industrial sector are finally very good, benefiting from the export boom. However in industries other than manufacturing, things aren’t doing so well. Retail trade and other areas have been fairly sluggish,” he said.

In other details of the report, the government said:

- Corporate cash flows, a measurement intended to show the funds corporations have for investment, rose 1.4% in the second quarter following a 0.9% increase in the January-March period.

- Dividend payments to stockholders rose 1.8% to an annual rate of $103.1 billion, following a 2.0% rise in the first quarter.

- Corporate profits before taxes were up 6.9% to an annual level of $305.9 billion in the second quarter, following a 1.5% rise in the first three months of the year.