Economy at a Virtual Standstill : Business: The quarterly GNP grew at an annual rate of only 0.5%. But analysts see an upturn and say that a recession appears unlikely.
The growth of the nation’s economy slowed virtually to a halt late last year, the government reported Friday, but analysts said a recession still seems unlikely and the economic expansion should pick up again soon, albeit at a sluggish pace.
Commerce Department figures showed the economy’s output grew at an annual rate of only 0.5% during the final three months of 1989 after adjusting for inflation--down from a 3% rate during the previous quarter and the lowest recorded since the spring of 1986.
For all of 1989, the nation’s gross national product rose a moderate 2.9%.
The slowdown partly reflected temporary factors, such as the impact of the San Francisco earthquake last October, the Boeing strike in mid-winter and the unusually cold weather, which kept consumers indoors and interrupted barge traffic and construction projects.
Michael Darby, the department’s chief economist, estimated that without those setbacks, the economy would have grown at a 1% rate during the fourth quarter.
And companion figures published by the Commerce Department showed that new orders for durable goods rose 2.5% in December, another sign that some momentum remains in the economy.
Nevertheless, Friday’s report seemed certain to fuel debate over whether the nation is heading into a full-fledged recession, intensifying pressure on the Federal Reserve Board to ease the tight anti-inflation stance that it has maintained since last fall.
Michael J. Boskin, chairman of President Bush’s Council of Economic Advisers, sidestepped a potential opportunity to criticize the Fed during a briefing for reporters Friday, but White House officials hinted as recently as last week that they hoped the Fed would ease its credit policies.
Boskin said that he still believes a recession is “unlikely” and that the economy “should be growing more rapidly than it is now” by midyear. Even so, Boskin and Budget Director Richard G. Darman both have been pressing the Fed to push interest rates down further.
Vice President Dan Quayle called the fourth-quarter figures disappointing. “These numbers this morning were not what we had hoped for,” he said.
Except for the strike impact, the fourth-quarter figures were in line with expectations. Economists have been predicting for months that the economy would slow markedly during late 1989 and early 1990 and then speed up moderately by late spring or early summer.
Robert Dederick, chief economist for the Northern Trust Co. of Chicago, proffered a view expressed by many private economists. “The basic message is that the aggregate economy is sluggish, and it isn’t going to stop being sluggish in the current quarter,” he said.
By far the most sweeping change in the economy in the last quarter came from a slowing in consumer spending, which edged down by $800 million, or 0.1%, after a rise of $36.4 billion, or 5.6%, between July and September.
The bulk of the decline reflected a falloff in auto sales. Spending on durable goods plunged 12.9% during the period, after an 11.3% rise in the previous quarter. Outlays for non-durables dipped only 1.4%, after a 5% rise during the summer.
But the slowing was evident virtually throughout the economy. Outlays for business fixed investment fell 3% during the quarter, after a 5.2% rise in the previous period. And net exports, whose gains buoyed the economy during earlier periods, slumped by $4.7 billion.
Even the gains seemed to mask signs of potential weakness. For example, the figures showed a major source of strength in the economy was the buildup of business inventories, particularly in apparel and other non-durables.
But Lynn Reaser, economist for First Interstate Bancorp in Los Angeles, cautioned that the increase, which reflected sluggish sales, was actually “a red flag” because it most likely would reduce orders in coming months, exacerbating the weakness in the manufacturing sector.
At the same time, the figures showed that inflation continued its slow, but steady rise. The index used in the report--considered the broadest measure of inflation--showed prices rising at an annual rate of 3.8% during the period, up from a 2.9% pace in the previous quarter.
The inflation rate for all of 1989 totaled 4.5%, up from 4.2% in 1988.
The December increase in new orders for durable goods was stronger than some analysts had expected. The 2.5% rise, which followed a 4.9% increase the previous month, brought the volume of new orders to $133.5 billion, up $3.2 billion from the November level.
But the bulk of the new orders was concentrated in aircraft, shipbuilding equipment and electrical machinery. Orders of motor vehicles, non-electrical machinery and primary metals all posted declines.
And orders for defense-related goods plunged $3.3 billion, or 29.2%, after an 18.9% gain in November.
The December rise brought the gain for all of 1989 to 5.9%, or $1.52 trillion, the lowest increase since 1986. By contrast, orders soared by 10.9% in 1988.
The fourth-quarter figures on output brought the GNP, or total value of goods and services that the nation produces, to $4.168 trillion, up from $4.069 trillion a year before. Friday’s figures were preliminary and are subject to major revision.
