3.8% Economic Growth Is Strongest in 4 Years

The nation’s economy grew at a healthy pace in the final three months of 1992 as consumers pulled out their wallets and charge cards in anticipation of better times, the government reported Thursday.

But President Clinton remains convinced that the recovery is fragile and must be fortified with substantial new government spending aimed at creating jobs.

Overall economic growth of 3.8% in the last quarter of 1992 was the strongest showing in four years--and the best three-month period during the tenure of former President George Bush, who was defeated in large measure because of his perceived failure to improve the economy.

The growth rate was stronger than the 3.4% rate in the July-September quarter and well above the 3% rate expected by most economists.

But the report failed to cheer Clinton and his economic advisers, who are struggling to craft an economic plan that creates jobs quickly while achieving a long-term reduction in the crippling federal budget deficit.

Clinton claimed credit for a strong rise in consumer spending, the primary engine of the strong fourth-quarter numbers. “I think there is a lot of response to the efforts we are making now,” Clinton said before a White House meeting with Federal Reserve Board Chairman Alan Greenspan. But, he added, “there is also a lot of troubling news about lost jobs. We’ve got a lot of work to do . . . a lot of work to do.”

The President was referring to recent announcements of large layoffs, financial losses and executive upheaval in a number of major U.S. industrial corporations, including Boeing Co., United Technologies Inc., IBM Corp., McDonnell Douglas Inc. and Sears Roebuck & Co.

Analysts fear that consumers’ growing credit debt and job insecurity could throttle the recovery and push economic activity back down over the next several months. There is also concern that Clinton’s expected fiscal stimulus program of about $20 billion will have negligible effect on either employment or economic growth.

“Poor job generation is the main problem with this recovery and it’s going to kill us if we don’t see some employment increases,” said David Wyss of DRI/McGraw-Hill, an economic forecasting firm. “Even Americans can’t spend forever without income. I worry we’re spending beyond our means and people are going to have to slow down in 1993, which means a slowdown in growth overall.”

After his meeting with the President, Greenspan told the Senate Budget Committee that if Clinton sticks to his vow to aggressively cut the federal deficit, financial markets will respond with lower interest rates.

He said the resulting decline in home mortgage rates and corporate financing costs would stimulate the economy far more than any short-term program Congress could enact.

“If the markets perceive that this issue (the deficit) is being addressed, we could get a very dramatic decline in long-term rates,” Greenspan said.

But Senate Budget Committee Chairman Jim Sasser (D-Tenn.) said he feared that the Fed would choke off the recovery because of its ingrained antipathy to inflation. Sasser warned Greenspan that too much caution could scuttle Clinton’s economic recovery plan.

“No action, more baby steps, or--worse--monetary contraction will without a doubt in my mind lay a killing frost over the economic spring that President Clinton is trying to force,” Sasser said.

The Clinton Administration continued to send mixed signals about how it intends to create jobs without running up the deficit.

White House Communications Director George Stephanopoulos said at a briefing Thursday afternoon that job creation was Clinton’s top priority and that the economic plan now being drafted would have new employment at its core.

Commenting on the new figures on the economy, Stephanopoulos said: “We’re all very pleased with the growth numbers that came out today, but even if you look at those growth numbers, we are still lagging far behind in job growth. And the first purpose of this economic plan is to create jobs. . . . We need a stimulus plan to create jobs.”

As if to help make the point, the Labor Department said Thursday that the number of Americans filing new claims for jobless benefits rose by 2,000 to 364,000 during the week ending Jan. 16. It was the third consecutive weekly increase and brought the total to the highest level in two months.

But Ira Magaziner, senior White House adviser for policy development, told House Democrats at an issues conference in Baltimore that deficit reduction was the new Administration’s chief concern.

“Job No. 1 has to be dealing with the deficit,” Magaziner said. “We have to convince the American people that we are fiscally responsible, especially as Democrats.”

As a result, he added, Clinton will propose a deficit-reduction package “which is painful and hits the sacred cows.”

Later, when questioned about the size of an economic stimulus program that Clinton is expected to propose, Magaziner said the President would like to do much more than he can in view of the constraints imposed by federal budget deficits, now running about $300 billion a year.

“They (previous Republican administrations) have left us in a real mess here,” the White House aide said. “There is a serious, serious deficit program that has to be addressed. . . . It took 12 years to get into this mess and we can’t get out in one year, two years or three years.”

According to figures released Thursday by the Commerce Department, for all of 1992 the nation’s gross domestic product, a broad measure of output of goods and services, totaled an inflation-adjusted $4.92 trillion, up 2.1% from the previous year.

Although the growth was moderate, it was still the best since the first year of Bush’s presidency, 1989, when gross domestic product rose 2.5%. It declined 1.2% during 1991 and grew a scant 0.8% in 1990, when the recession started.

In the fourth quarter of 1992, growth was propelled by a 4.3% rise in consumer spending, at a seasonally adjusted annual rate, the best since the first quarter. That included a 12.9% rise in spending on durable goods, including a large jump in automobile sales.

Housing construction rose at a 29.1% annual rate, the best in nine years. Commercial construction, which has been in the doldrums, rose at a 4.5% annual rate.

Times staff writer William J. Eaton contributed to this story.