Economy Up at Annual 2.5% Rate in Spite of Trade Drop, Hurricane

The U.S. economy grew at a moderate annual rate of 2.5% from July through September despite the poorest trade performance in six years and a $4-billion income loss from Hurricane Hugo, the government reported today.

The Commerce Department said the increase in the gross national product, the broadest measure of economic health, matched a 2.5% rise in the April-June quarter. Third-quarter growth was aided primarily by a boom in consumer spending that resulted from heavy car sales.

Inflation showed a marked improvement in the third quarter, with a price index tied to the GNP climbing at an annual rate of just 2.9%, down significantly from a 4.9% annual advance in the first half of the year.

Michael Darby, undersecretary of commerce for economic affairs, said the moderate economic growth and lower inflation offer encouraging signs that the nation’s record peacetime expansion will extend into the next decade.

The lower inflation rate is “creating appropriate conditions for stronger non-inflationary growth as the decade of the 1990s unfolds,” Darby said.

Through the first nine months of 1989, the economy has grown at an annual rate of 2.9%, exactly on target with the Bush Administration’s forecast for the whole year.

But many analysts are predicting that growth will slump dramatically in the final three months of this year in the absence of the auto sales boom that spurred consumer spending from July through September.

Many economists predict the country will flirt with a possible recession over the next 12 months because of expected weakness in such areas as trade and business investment.

Signs of deterioration were evident in the third quarter as the U.S. trade deficit, as measured by the GNP, surged by $22.9 billion. It was the worst trade figure since the second quarter of 1983.

Trade had been one of the economy’s brightest spots as a boom in export sales spurred a rebound in U.S. manufacturing. However, economists have warned for some time that hefty increases in the value of the dollar threatened to derail the trade improvement by making American goods more expensive on overseas markets.

In the third quarter, imports shot up at an annual rate of 15.1% while exports did not grow at all, the poorest showing since early 1986.