3rd-Quarter Growth Picks Up to 2.7% as Trade Gap Widens

The economy laid the groundwork for a strong year-end finish by expanding at a moderate 2.7% rate in the third quarter. Low interest rates are reviving construction, consumer spending and business investment, but trade remains a problem.

The seasonally adjusted gain in the nation’s gross domestic product, the sum of all goods and services produced in the United States, represents a slight revision to an earlier estimate of 2.8%, the Commerce Department said Wednesday.

The change was attributed to a surge in imports, up at a 6.1% annual rate instead of the 1.9% first reported.

Analysts nevertheless were cheered by the economy’s overall performance, particularly since it occurred despite billions of dollars in crop damage from floods in the Midwest and drought in the Southeast. Without the crop losses, the GDP would have risen 3.3%.

Many analysts are forecasting growth of better than 4% during the current quarter. They warn that the economy will probably slip some early next year but said the swing won’t be as severe as a year ago. Then, the economy raced ahead at a 5.7% rate in the fourth quarter only to lapse to an anemic 0.8% pace in the first.

In another sign that the economy is gaining momentum, the National Assn. of Purchasing Management said its index rose to 55.7 last month from 53.8 in October and that the overall economy is growing at its fastest pace since February.

It was the second straight month the index was above 50, a level that suggests the manufacturing sector is expanding. A reading below 50 suggests contraction. The index is seen as a key indicator of the previous month’s economic performance.

“With the backlog of orders rising to the highest level all year, it appears likely the improvement in the economy will continue in December, capping the strongest quarter of growth in 1993,” said Robert Bretz, chairman of the association’s business survey committee.

On a less positive note, the nation’s trade deficit in the third quarter widened to $36.3 billion from $34.4 billion in the second quarter. It was the widest quarterly gap since the fourth quarter of 1987, when it was $39.6 billion.

Meanwhile, the Commerce Department said construction spending jumped 2.5% in October for the sixth straight advance, hitting a new record on the back of the lowest long-term interest rates in two decades.

The gains were broad-based for both private and government construction. The new high eclipsed the previous record set in September, when spending rose a revised 1.5%. The September increase previously was reported as 0.8%.

The department also reported that corporate profits in the third quarter edged up 0.8%, a slowdown from the 5.2% jump reported for the second quarter.

GDP

Gross domestic product measures all the goods and services produced by workers and capital in the United States, regardless of ownership.

Percent changes from previous quarter

3rd quarter: 2.7%

Source: Commerce department

Purchasing Managers Index

The National Assn. of Purchasing Management’s monthly index tracks overall business activity of more than 300 industrial companies.

Nov., ‘93: 55.7%