Economy Rises Only 0.5% in 4th Quarter : Growth: Near standstill fuels fears that U.S. is ‘flirting with a recession.’

The U.S. economy slowed to a near standstill in the final three months of the year, with growth registering a barely perceptible 0.5% annual rate, the poorest showing since the spring of 1986, the government said today.

The meager performance of the gross national product, the total output of goods and services, was certain to fan the debate over whether the country is in danger of toppling into a recession.

The GNP for all of 1989 rose a moderate 2.9%. This followed growth of 4.4% in 1988 and was the slowest annual increase since a 2.7% rise in 1986.

While most private economists say the United States will be able to avoid an outright downturn, a more pessimistic minority noted that the government statistics are subject to wide revisions and that today’s growth rate could be lowered in coming months, possibly to a negative number.

A recession usually is defined as two consecutive quarterly declines in the GNP.

“The GNP report shows the economy ground to a virtual halt in the fourth quarter with signs of weakness everywhere,” said Allen Sinai, chief economist of the Boston Co. “The economy is flirting with a recession.”

But the Bush Administration, which is counting on a rebound in growth to provide badly needed government revenues, was more upbeat in its assessment of the GNP report.

Michael Boskin, chairman of President Bush’s Council of Economic Advisers, blamed part of the fourth-quarter slowdown on one-time factors, such as the unusually cold December weather, the Boeing aircraft strike and the effects of Hurricane Hugo and the San Francisco Bay Area earthquake.

Boskin predicted “a period of slower growth” in the months ahead, but he said the economy will rebound later in the year. And, while not ruling out a recession, the President’s chief economist said, “I believe it’s unlikely.”

The 0.5% growth in the fourth quarter marked the economy’s weakest showing since a decline of 1.8% in the second quarter of 1986.

However, after that one downturn, economic activity rebounded, helped in large part by a boom in U.S. export sales that lifted the fortunes of American manufacturers.

But with the improvement in the trade deficit slowing dramatically this year, manufacturing unemployment has begun to rise again.

On the inflation front, prices, as measured by an index tied to the GNP, rose 4.5% in 1989. That was the fastest increase since a 6.2% jump in 1982.

The biggest drag on economic activity in the fourth quarter was a huge swing in consumer spending, which posted a rare decline of 0.1%, reflecting a big drop in demand for new autos.

It was the first decline in consumer spending in two years and came after a giant 5.6% jump in the July-September quarter when consumers had rushed to buy cars to take advantage of discount pricing.

Since consumer spending accounts for two-thirds of all economic activity, the big swing in this category had a major dampening effect on economic activity.