Slowing Growth Puts Economy Near Recession

The nation’s economy tottered to the brink of recession last quarter, growing at an annual rate of only 1.2%, following a revised 1.7% pace during the first three months of the year, the Commerce Department reported Friday.

But analysts said that the economy’s actual performance may be even bleaker than the overall figures indicate.

A breakdown of Friday’s gross national product statistics showed declines in virtually every major sector: Spending by individuals and business shrank at an annual rate of 2.2%, net exports plunged sharply, business investment fell at a 6.1% annual rate and home building plummeted.

Only an unexpectedly large buildup of unsold inventories on auto lots, in warehouses and on retail shelves kept the nation’s total output from declining between March and June. And analysts say a large accumulation of unsold goods often is a prelude to a recession.

“These numbers make the economy weaker than even some of us bears have been saying,” said Irwin L. Kellner, economist for Manufacturers Hanover Bank in New York. “Inventories are up and sales are down, and there’s no sign of things getting better out there.”

Allen Sinai, chief economist at the Boston Co., agreed. “All the important factors declined, and the inventory swing is the only thing that produced a positive statistic,” he said. “Without the inventories, the economy in this quarter really would be in recession.”

Some analysts suggested that the grim figures on Friday might push the independent Federal Reserve Board closer toward a relaxation of money and credit policies. The Fed has been under pressure from the White House to push interest rates down but so far has demurred.

At the same time, the GNP price index--the broadest measure of inflation--eased during the quarter, showing inflation slowing to an annual rate of 4.1% during the period, down from a 6.1% pace during the first three months of the year.

Friday’s new figures do not yet show the economy in a recession. Before any slowdown can qualify for that label, output must decline for two consecutive quarters. So far, the economy is continuing to grow, although the pace is somewhat slower than previously was believed.

But revised computations showed the economy grew more slowly during the first three months of this year than the department initially reported--at a 1.7% annual rate, rather than a 1.9% pace.

And revised figures showed the growth rate in late 1989 actually was 0.3%, not the 1.1% rate that had been published in the previous report.

The department made public also an annual revision showing that the economy has grown at annual rates of less than 2% in each of the last five quarters--which it said constituted the longest string of very slow growth on record.

Sinai noted that the string of slow-growth quarters, since March, 1989, is unprecedented since World War II. Since the first quarter of 1989, the economy has grown, quarterly, at annual rates of 1.6%, 1.7%, 0.3%, 1.7% and 1.2%.

Even so, Giulio Martini, economist for Sanford C. Bernstein & Co. of New York, took issue with the suggestion that the economy may be on the brink of a recession.

Martini argued in a telephone interview that, because inventories have been growing below the long-term trend for several quarters now, the second-quarter increase merely constitutes “a correction.”

Excluding agriculture, he noted, business inventories fell at annual rates of $29.9 billion at the end of last year and in the first quarter of 1990, and they declined $7.8 billion in all of 1989 and $2.2 billion in 1988.

In 1987, the last year of strong growth before the stock market crash in the fourth quarter of that year, inventories rose by $20.7 billion--all after adjustment for inflation.

Martini suggested that some of the numbers in Friday’s report on consumer spending seemed unlikely to be an accurate reflection of reality.

The report, an estimate of growth based in many cases on only two months’ statistics, suggests that spending on food declined steadily in real terms over the last year, even though the nation’s population increased.