4th-Quarter GNP Revised Upward to 1.1% Annual Rate

The economy grew at a 1.1% annual rate in the final three months of 1989, better than the 0.9% rate estimated a month ago but still the weakest quarterly performance in more than three years, the Commerce Department said Wednesday.

In its second and final revision of fourth-quarter gross national product, or GNP, the department said consumer spending was slightly higher than earlier estimated and the buildup in stocks of unsold goods was less than previously reported.

But the fourth-quarter rate of growth was the weakest GNP expansion since the third quarter of 1986, when the economy expanded at a weak 0.8% annual rate.

The department said corporate profits after taxes, which had fallen in each of the three preceding quarters, rose to a seasonally adjusted annual rate of $156.7 billion in the final three months of 1989 from $152.4 billion in the third quarter.

But corporate profits for the full year fell 4.7% to $160.9 billion after taxes, from the 1988 total of $168.9 billion. In 1988, after-tax profits had risen 18.9%.

Economists had expected GNP would be unrevised at a seasonally adjusted 0.9% rate. The preliminary estimate of economic growth for the fourth quarter, made in January, showed only a 0.5% rate of expansion. But that figure was revised upward in February to 0.9% before Wednesday’s final 1.1% figure.

For the full year 1989, total goods and services output increased at an inflation-adjusted rate of 3.0%, compared to 4.4% in 1988 and 3.7% in 1987. It was the weakest annual growth rate since 1986, when the economy grew by only 2.7%.

The increase in the implicit price deflator, a broad gauge of inflation that measures price changes on a basket of goods and services, rose 3.2% in the fourth quarter, the same as previously estimated and the same as in the third quarter.

The economy slowed sharply late in 1989 as the industrial sector slumped under the impact of weak auto sales and a softening of new orders.

Most forecasts for 1990 anticipate sluggish economic growth in the first half of the year, with the rate of activity picking up in the final six months. In a joint report to Congress published this week, the Treasury Department and the U.S. trade representative’s office predicted real GNP expansion of 2.4% in 1990 and 3.2% in 1991.

But weaker corporate profits are a worrisome sign of economic stress for policy-makers, because they can adversely affect business spending and investment decisions.

The rate of consumer price increases slowed to 0.5% in February from an exceptionally high 1.1% in January but remains high enough that the Fed has given no indication it intends to loosen its restraining grip on interest rates.

In a sign of slower economic growth, the department said business investment during the fourth quarter last year fell at a 5.4% rate compared to an increase of 5.2% in the third quarter.

Consumer spending, which accounts for about two-thirds of demand for the economy’s goods and services, rose by a slim 0.5% in the fourth quarter after expanding by 5.6% in the third quarter.

The department said personal consumption spending rose $3.6 billion in the final three months last year, a revision upward from the $2.5-billion gain estimated previously, but down from a $36.4-billion increase in the third quarter.

The department said real spending on long-lasting durable goods decreased by $16.1 billion in the quarter after rising by $11.5 billion in the third quarter, mainly because of reduced motor vehicle sales at the end of 1989.

Non-durable goods purchases increased by $300 million after a rise of $11.1 billion in the third quarter.

The department said business inventories during the fourth quarter grew by $22.2 billion, down from $26.2 billion estimated a month ago but up from $21.9 billion in the third quarter last year.

GROSS NATIONAL PRODUCT

Percent change from previous quarter at annual rate

4th Quarter (revised): $4.17 trillion annual rate, up 1.1%