In a final revision that revealed a more robust economy late last year than previously reported, the government said today that real gross national product rose 2.4% in the final quarter of 1988.
The 2.4% increase was 0.4 percentage point higher than reported in two preliminary estimates of growth in the nation’s output of goods and services, adjusted for inflation. In dollar terms, the economy grew by $24 billion from October through December to $4.33 trillion. The GNP was up 2.5% in the third quarter, the Commerce Department Census Bureau said in its report.
The fourth-quarter revision was based on larger government purchases and stronger business investment, with the largest downward revision in net exports--signaling a widening U.S. trade gap.
Although the 2.4% increase in economic growth is still the smallest hike since a 1.4% gain in the fourth quarter of 1986, the greater strength reflected in the revision could prove worrisome. The Federal Reserve Board has been banking on slower economic growth to stunt rising inflationary pressures seen in recent wholesale and consumer price figures.
The revision was “slightly negative because the trade deficit is worse and the economy is slightly stronger than it was,” said David Wyss, chief financial economist for Data Resources Inc. in Lexington, Mass.
GNP Revision Discounted
But, he added, the GNP revision amounts to “old news” that should not have a great impact on current policies.
“The Fed believes that growth is slowing, but this doesn’t tell them much. The Fed is worrying about the first half of 1989 and not the last half of 1988,” Wyss said.
Corporate profits after taxes, another component of the GNP report, increased 2.8% in the fourth quarter, down from 3.9% from July through September, the department said.
The bureau said losses in crop and livestock production because of the 1988 summer drought shaved about 1.1 percentage point off the fourth-quarter GNP after taking a 0.5 percentage point bite out of the third quarter.
Farm output is expected to return to normal in the current quarter, which should add about 2.5 percentage points to first-quarter economic growth, the department said.
Personal spending in the fourth quarter increased $22.4 billion.
Business fixed investment decreased $3.6 billion while residential investment increased $5 billion.
Net exports of goods and services fell $11.5 billion. That included an $8.1-billion hike in exports and a $19.5-billion increase in imports, the department said.
Federal government purchases increased $15.4 billion while state and local government purchases were up $6.6 billion.
Final sales increased 3.5% to $34.5 billion in the last three months of 1988, the department said, while business inventories increased $29.1 billion, the department said.
Domestic purchases of goods and services increased 3.5%.