Economy Rises Only 1.9% in 1st Quarter : Increase Is Second-Slowest Advance in More Than 3 Years; Inflation Put at 6.4%

The nation’s economy grew at a 1.9% annual rate from January through March, the second slowest quarterly advance in more than three years, the government said today.

The Commerce Department said the increase in the broadest measure of the nation’s economic health--the gross national product--was up from the 1.1% rate in the final quarter of 1989. That had been the slowest advance since a 0.8% gain in the summer of 1986.

At the same time, inflation as a price index tied to the GNP rose 6.4% at an annual rate. It was an improvement from the 6.7% increase reported last month and the 6.5% advance originally reported in April.

The inflation rate was the highest since it raced ahead at an annual rate of 7.7% in the final quarter of 1981. However, most economists attributed the jump in the January-March period to the adverse effects of unusual winter weather and predicted prices will decline during the remainder of the year.

The new GNP figure for the first quarter approached the 2.1% gain in the department’s original estimate in April. That estimate was lowered last month to 1.3%.

Most economists had expected little change from the May figure.

The economy advanced 3% in 1989, down from 4.4% a year earlier.

Despite the slower growth, most economists believe the economy will continue to skirt a recession, generally defined as two straight declines in the GNP.

The first-quarter growth rate was less than the Bush Administration’s 2.4% estimate earlier this year. To meet that goal, the economy would have to spurt ahead 2.6% at an annual rate during the remaining nine months.

Commerce said the improvement in today’s report was due mainly to $6.8 billion more in net exports than previously thought. At the same time, consumer spending was $5.3 billion less than estimated last month.

The various changes left the GNP, after adjusting for inflation, totaling $4.193 trillion after the first three months of the year.

In a companion report, the department said after-tax profits of U.S. corporations were up a revised 1.1% in the first quarter after rising 2.8% in the final three months of 1989. It originally reported that profits had risen only 0.2%.

Corporate profits had fallen during each of the first three quarters of last year, including a 1.1% drop during the comparable months of January through March.

In a report Wednesday, the Federal Reserve Board said its survey of its 12 district banks “suggests slow growth in the economy with little change in the underlying inflation rate.”

The survey, completed June 8, shows that the manufacturing sector remains flat but is showing signs of improvement in some areas including some strengthening in the sluggish auto industry.

The construction industry, on the other hand, has “been edging downward in recent months in most districts and indicators of future construction suggest further softening,” the survey found.