2% Growth in Economy Points to Modest Recovery
The U.S. economy grew at an annual rate of 2% in the first three months of 1992, the government reported Tuesday, providing fresh evidence that at least a modest recovery is in full swing.
President Bush and other Administration officials hailed the first-quarter gain in the gross domestic product--the economy’s total output of goods and services--as a clear signal that the longest-running recession since World War II may be ending.
“Most people would say that 2% growth is not recessionary,” the President told reporters at the White House. “There are some areas that are still hurting, but clearly this is a good sign and there are a lot of other good signs.”
Separately, a widely followed private survey released Tuesday showed that consumer confidence surged in April as Americans demonstrated more optimism about the outlook for jobs and business.
While the economy’s expansion was welcomed by analysts, some said it falls far short of the vigorous growth that typically follows a recession and suggested that the recovery may proceed at an anemic rate.
The modest growth from January through March probably is not enough to bring down the nation’s unemployment rate from its 6 1/2-year high of 7.3%, economists noted. And the growth was tempered by a separate report showing that sales of new homes declined 14.8% in March, the biggest drop in more than 10 years.
Even so, the first-quarter growth rate was the best since the 2.5% expansion recorded during the first three months of the Bush Administration in 1989, and it followed a near economic standstill in last year’s fourth quarter.
Bolstering the Commerce Department’s figures, the separate consumer report by the Conference Board, a business research group, said its consumer confidence index jumped eight points to 64.8 for a two-month climb of 17 points. The index has a base of 100, established in 1985.
The index is still well below levels seen before the start of the recession and the Persian Gulf crisis. Fabian Linden, an economist for the Conference Board, said consumers are uneasy about the current state of the economy but “are increasingly hopeful about the future.”
In a third report, the Labor Department said American workers’ pay and benefits rose 0.9% in the first quarter, the same gain as in the previous three months. The department also reported that union contracts settled during the first quarter gave workers a 3% average annual pay raise over the life of the contracts.
“We believe the economy will continue to improve as the year progresses,” said Michael J. Boskin, chairman of the President’s Council of Economic Advisers.
Asked specifically whether the recession had ended, Boskin would say only: “We’ve returned to a pattern of growth.”
Speaking with reporters at the White House, Boskin said economists are encouraged by the new figures. A growth in sales would help industries draw down inventories, with the likely result of increased manufacturing--and thus a boost in jobs--in the future. This, he said, foretells additional growth in the next two quarters leading up to the presidential election.
“Obviously, the President wants to see the economy growing more robustly,” Boskin said. He said growth at a rate greater than 2% is generally considered necessary to produce enough jobs for the unemployment rate to fall.
Other economists agreed that the economic upturn will not last unless employers have enough confidence in the future to begin rehiring laid-off workers.
“If businesses are too cautious about their hiring plans, they won’t give people the income necessary to keep growth going,” said Robert G. Dederick, an economist with Northern Trust Co., a commercial banking firm in Chicago.
Allen Sinai of the Boston Co., a financial services company in New York said “a pickup in profits will be the key to fueling growth.” He said this is crucial inasmuch as “anemic profits were a key to pushing us into this three-year period of anemic growth.”
David Wyss, an economist with DRI-McGraw Hill in Lexington, Mass., said: “We’re not completely out of the woods, but this is a good sign that the recovery is beginning.”
First-quarter gross domestic product generally was in line with the predictions of most economists.
The growth rate was boosted mainly by a healthy 5.3% increase in consumer spending, the best since the fourth quarter of 1987. Spending rose an especially strong 18.3% for durable goods like automobiles, appliances and home furnishings.
Among the other components, housing construction surged 15.8% in the first three months, accounting for nearly a fourth of the overall advance. This increase, the largest in nearly six years, took off at the start of the year when mortgage rates hit a 19-year low.
Commercial construction declined at an 8.5% annual rate. But investment by companies in new equipment rose slightly at a 1.6% annual rate after a decrease in the previous quarter.
Business inventories dropped substantially, but economists saw it as a promising sign. They reasoned that if consumers keep spending, factories will be forced to increase production to replenish inventories.
Rising mortgage rates, a warmer winter and a failed tax credit proposal are among factors blamed for a 14.8% drop in new home sales. D1
GM SHOWS QUARTERLY PROFIT: General Motors Corp. reported its first quarterly profit in 18 months. D1
Economy Watch
Renewed car and retail sales have boosted the U.S. economy by a 2% annual rate during the first three months of the year, the Commerce Department reported.
Gross domestic product: Modest growth followed a near standstill in the fourth quarter of last year. Mortgage refinancing apparently provided consumers cash to renew spending on cars, furnishings and appliances. Government spending is up 2.8%.
Unemployment: Remains at a 6 1/2-year high of 7.3%.
Homes: The Commerce Department reported a 14.8% seasonally adjusted drop in new home sales in March, the steepest in 10 years, following a 7% decline in February. Housing construction is up, however.
Personal income: The Labor Department reported U.S. workers’ wages, salaries and benefits rose 4% in the year ended March 31, slightly less than the 4.6% gain during the previous 12 months.
