Sluggish Economy Posts 1.3% Increase : Weak Growth in Gross National Product Accompanied by 6.7% Price Index Hike

From Associated Press

The nation's economy grew at a sluggish annual rate of 1.3% from January through March, far slower than previously believed, the government reported today.

The Commerce Department said that the increase in the broadest measure of economic health--the gross national product--was much weaker than an initial estimate it made one month ago. At that time, it put GNP growth at a faster 2.1% rate.

The weak growth was accompanied by a spurt in inflation as a price index tied to the GNP climbed at a steep annual rate of 6.7%, the biggest inflationary surge in more than eight years. The increase was revised from an initial estimate of 6.5%.

Although surprised by the size of the downward GNP revision, economists said they do not believe it indicates the country is in danger of toppling into a recession.

They noted that the weakness came from a big reduction in the estimate of how much business inventories grew during the first three months of the year.

Slower inventory growth is viewed as a favorable sign for future growth because it means businesses will have less of a backlog of unsold goods to work down before they can start ordering again.

"The first quarter was a time of major inventory correction and actually a healthy correction," said Allen Sinai, chief economist of the Boston Co. "It was setting the economy up for sustained growth provided that sales stay up."

The 1.3% first quarter GNP increase was only a slight improvement from a 1.1% GNP growth rate in the final three months of 1989. The growth rates in both quarters were the slowest since the summer of 1986 when the economy grew at a 0.8% annual rate.

The inflation rate was the highest since it raced ahead at an annual rate of 7.7% in the final quarter of 1981. The GNP price gauge rose 4.5% for all of 1989.

Many economists expect inflation to moderate as the year progresses. They contend the first-quarter report was skewed by unusual winter weather that killed crops and drove up fuel prices.

Indeed, Commerce said "about one-half of the step-up was due to food and energy prices; large increases in January followed unusually cold weather in December."

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