GNP Up 2.1%; Inflation Rate Strongest Since ’81

The nation’s first-quarter gross national product rose 2.1%, or $21.7 billion, with inflation making its strongest showing since 1981, the Commerce Department said Friday.

Higher food and energy prices, a result of early winter’s unusually cold weather, accelerated inflation during the quarter to an annual rate of 6.5%, from 3.6%, as measured by the GNP fixed-weights price index.

The rise in the index was the greatest since a 7.7% gain in 1981, the department said.

Antonio Villamil, the department’s chief economist, said inflation rose to 5.2%, excluding the often volatile food and energy prices and a pay raise for federal employees.

He said inflationary pressures are expected to ease slowly during the rest of the year.

“Our assessment is based on the ongoing thrust of monetary policy that aims for price stability, continued expansion of our productive base by the private sector and the likely unwinding of energy and food prices,” he said.

Private economists agreed that the first-quarter upturn in inflation is likely the result of the unusual weather conditions at the beginning of the year and do not indicate a long-term period of higher prices.

“The basic message is the economy has not slowed sufficiently to bend the back of inflation, let alone break it,” said Robert Dederick, chief economist at Northern Trust Co. in Chicago. “Until we see these numbers slide down again, we’ll have to be uncomfortable.”

Mickey Levy, chief economist at First Fidelity Bancorp, in Philadelphia, said the first-quarter inflation numbers were so distorted by weather conditions that they should be averaged with fourth-quarter figures.

Doing this brings inflation’s rise to about 4.6% and the GNP’s gain to 1.2%, he said.

“I strongly believe the fixed-weight (index) will roll off and inflation numbers will improve in the second quarter,” Levy said.

During the fourth quarter of last year, the GNP rose 1.1%, or $11.2 billion.

Despite the larger than expected price rise, the first quarter showed some encouraging developments, Villamil said.

First-quarter personal consumption gained $16.4 billion after an increase of $3.6 billion in the fourth quarter. Durable goods purchases rose $16.8 billion, largely from motor vehicle sales, after falling $16.1 billion in the previous quarter.

Purchases of nondurable goods decreased $8.9 billion in the first quarter after rising by $300 million in the fourth quarter. Service expenditures were up $8.5 billion during the quarter.

Home heating expenses for fuel oil, electricity and natural gas decreased $13.1 billion in the first quarter after rising $8 billion in the fourth quarter.

Nonresidential investments increased $9.4 billion during the quarter after falling $7.1 billion in the fourth quarter. Residential real estate investment costs rose $3.8 billion in the first quarter from a decrease of $500 million in the previous quarter.

Net exports gained $6 billion in the first quarter after rising $9.9 billion in the fourth quarter. Exports rose by $1.4 billion from a gain of $13.5 billion, while imports decreased $4.6 billion from a rise of $3.6 billion.

First-quarter government purchases rose $1.9 billion after falling $2.8 billion in the fourth quarter.

Defense-related purchases gained by $200 million after decreasing $4.4 billion. Non-defense government purchases increased $1.7 billion, unchanged from the fourth quarter.

Final sales for the period, the total of each of the spending components used to determine the GNP, rose 4%, or $41.3 billion, after rising 1.1%, or $10.9 billion during the previous quarter.

Business inventories rose by $2.6 billion after gaining $22.2 billion. Gross domestic purchases gained 1.5%, or $15.6 billion, during the first quarter after rising 0.1%, or $1.4 billion in the fourth quarter.

Personal savings fell by $500 million during the quarter after rising by $20.9 billion in the fourth quarter. Personal income gained $99.4 billion, mostly from a pay raise for federal government employees.

The department also reported a decrease in after-tax corporate profits for the fourth quarter. Corporate profits decreased a revised $9.3 billion to a seasonally adjusted annual rate of $285.9 billion.

Profits for nonfinancial corporations were down $14.6 billion during the quarter. Profits also decreased for manufacturers of durable and nondurable goods, transportation companies and utilities.