New Yardstick Finds Anemic Growth : Economy: The measure of the nation’s gross domestic product grew at a weak 1.7% in the third quarter.
The economy grew at an anemic 1.7% rate during the third quarter, the Commerce Department reported Wednesday as it unveiled a new economic yardstick that shows that the slump of late 1990 and early 1991 was deeper than initially estimated.
The new gross domestic product measurement, which excludes overseas earnings included in the benchmark gross national product yardstick, indicates that the economy expanded during the second and third quarters, instead of during the third quarter only, as previously reported.
The revisions suggest that the nation definitely began rebounding from recession in early spring. But they also show that the slump that preceded the recovery was more severe than indicated by the old GNP figures and the rate of growth during the most recent quarter was much slower than estimated a month ago.
While the introduction of the GDP standard is as much an accounting adjustment as a reassessment of the nation’s economic health, it could increase pressure on the Bush Administration and Federal Reserve Board to take additional steps to stimulate the recovery.
White House press secretary Marlin Fitzwater, while initially reluctant to comment on the revised figures, finally conceded that the picture they presented was far from pretty. “We think the economy is very slow, very sluggish,” Fitzwater said.”Everyone understands the economy has real problems.”
Michael J. Boskin, chairman of the president’s Council of Economic Advisers, said the course of the economy remains basically unchanged, despite the downward revision in third-quarter growth and the flurry of statistical revisions.
“The hits to the economy, whichever way you measure it, were in the fourth quarter of 1990 and the first quarter of 1991, and then it started to turn around,” said Boskin, who predicted Tuesday that it is likely to remain sluggish for several months.
Lynn Reaser, an economist at First Interstate Bancorp in Los Angeles, said the downward revisions in the rate of economic shrinkage during the fourth quarter of 1990 and first quarter of 1991 actually turned out to be less dramatic than some analysts had anticipated.
“There was a concern the revisions might show a still deeper recession than we had,” Reaser said. “Certainly there were two negative quarters, but with 1.4% growth rate in the second quarter and 1.7% in the third, there is a slow process of recovery.”
The revisions “show a deeper but shorter recession than we earlier thought,” added David Wyss of DRI/McGraw Hill, a Lexington, Mass., forecasting firm. “Now the recovery is stalled, but there is still no sign of a second downturn. There’s nothing yet to justify all the gloom you hear that the economy is about to turn into a disaster. But the economy is going to be flat.”
With the new procedures, the United States joins most other developed countries in measuring growth by domestic product, excluding income on production and earnings from assets owned abroad. Among other things, that means that overseas earnings of U.S. oil companies that benefited from soaring petroleum prices in late 1990 are not counted in the new GDP measure.
Besides indicating that the latest recession was more pronounced, the new standard shows marginally slower economic growth during the 1980s but substantially greater personal income growth and a higher personal savings rate than earlier estimated.
The 1.7% growth in gross domestic product during the third quarter equates to $20.3 billion in inflation-adjusted 1987 dollars. The new figure supersedes a previous estimate of 2.5%, or $25.1 billion in 1982 dollars.
At the same time, Commerce Department statisticians estimated that the economy--which earlier was reported to have shrunk slightly during the second quarter--actually grew at a 1.4% rate when GDP is measured in 1987 dollars.
The slowdown in reported third-quarter growth from earlier estimates is attributable in part to the shift to 1987 dollars. But economists noted that new data shows that consumption by increasingly cautious U.S. consumers was down sharply in September from previous estimates. And imports were higher, accounting for a further reduction in domestic economic growth.
Meanwhile, in a separate assessment of current economic conditions, the Federal Reserve Board reported that the buyers’ slowdown that began in September has continued into the present quarter.
The Beige Book survey of regional Federal Reserve Banks “generally suggested flagging momentum in the economic recovery in October and early November, with most districts in the middle of the country indicating continued but slower growth and most other districts reporting stable to slightly weaker conditions,” the Fed said.
In another report, the Commerce Department said corporate profits from current production increased a weak 0.1% in the third quarter following a 0.5% increase in the second.
* GOOD NEWS FOR AUTO INDUSTRY
Improved sales of domestically built cars raise hopes that recovery may be near. D3
