Economic Growth Surges at Fastest Rate in Six Years : Production: Purchases of cars, homes fueled spurt at end of 1993. Inflation stays at low level, government says.

A rush of new buyers for homes, cars and business equipment spurred the nation’s economy to grow at a 5.9% rate--the fastest pace in six years--during the last three months of 1993, while inflation remained at low levels, the government reported Friday.

The combination of stronger-than-expected growth and low inflation drew expressions of satisfaction from the Clinton Administration and business executives, cheered financial markets and bolstered hopes of recession-weary Californians that their long-awaited recovery may be in sight.

Most economists agreed that the strong fourth-quarter growth won’t be sustained through the first half of this year, particularly as Americans begin to feel the effects of last year’s tax hike.

The national economy is also sure to be hurt by the effects of the Northridge earthquake and this month’s brutal winter weather in the East, they said.

Even so, economists said the national economy will probably grow faster than the Administration’s expected 3% in 1994--and that will be good news for everyone as long as it doesn’t trigger higher inflation.

“This upturn is not driven by the government, in terms of higher spending or lower taxes, but just the opposite,” said Allen Sinai, chief economist at Lehman Bros., an investment firm in New York. “What appeared in the fourth quarter is strictly the private domestic sector lifting itself up by its own bootstraps, and that’s very impressive.”

The nation’s gross domestic product--the total output of goods and services produced in the United States--increased at an annual rate of 5.9%, its fastest rate since 1987, according to a preliminary report by the Commerce Department. Revised GDP figures are due March 1.

The growth came on the heels of modest 2.9% annual growth in the third quarter of 1993, an anemic 1.9% spurt in the second quarter and 0.8% growth in the first.

GDP growth for the year was 2.9%, the best performance since 1988’s 3.9%, the Commerce Department said.

Wall Street reacted enthusiastically to the news Friday, sending the Dow Jones industrial average up 19.13 points to an all-high of 3,945.43.

The Administration was not shy in taking credit for the robust growth, even though the figures partly reflected one-time gains from an adjustment in national auto production and a renewal in farm income from fields no longer inundated by last summer’s Midwest floods.

“You can’t get much more solid and steady growth than that,” Treasury Secretary Lloyd Bentsen told a meeting of the U.S. Conference of Mayors in Washington.

At the same time, an inflation measure linked with the GDP--the so-called “deflator”--rose at a 1.3% annual rate, down from a rate of 1.6% in the third quarter. It was the lowest showing since a 1% gain in the third quarter of 1992.

Added to previous reports indicating that inflation has not yet heated up, Friday’s news seemed likely to take pressure off the Federal Reserve Board to raise interest rates.

The bond market clearly thought so Friday, sending the yield of the Treasury’s bellwether 30-year bond down sharply to 6.21% from 6.26% Thursday.

It remains unclear, however, whether the Fed will hold off for long. Economists said they expect that the Fed will eventually take preemptive action to forestall inflation if the economy appears to be overheating.

Fed Chairman Alan Greenspan is scheduled to testify to Congress on Monday. The Federal Open Market Committee, which sets monetary policy, is scheduled to hold a strategy session next week.

The fourth-quarter growth was driven mainly by purchases of durable goods--items such as autos and appliances that are intended to last at least three years--and by purchases of new homes. Both were spurred by low interest rates and pent-up demand.

The growth also reflected strong new capital expenditures for computers and other business equipment as industry restructures to improve productivity.

Durable-goods purchases were up at an annual rate of 14.3% in the quarter; residential fixed investment was up at a 31.7% rate, while business equipment expenditures rose at a 24.6% rate.

Al Spitzer, president of a Cleveland-area management firm that franchises 30 auto dealerships throughout Ohio, said sales in 1993 were between 5% and 7%. At the same time, inventories of autos on hand were down from more than a 60-day supply last year to about a 45-day supply now.

Kaufman & Broad Home Corp., California’s largest home builder, reported that its gross sales in the West amounted to 625 houses this month, compared with 475 in January, 1993, said Eli Broad, founder of the company and chairman of its executive committee.

California stands to benefit from an investment-driven national recovery because the state produces the kinds of computers, instruments and other capital equipment that industry is now buying.

“We think that the strength of the national economy is very important for California,” said Stephen Levy, an economist and head of the Center for Continuing Study of the California Economy in Palo Alto.

At Santa Clara-based Intel Corp., industry’s move to streamline itself has paid handsome benefits. The firm, which makes 85% of the microchip brains in the world’s personal computers, saw revenues balloon by 50% in 1993 and profits soar 115%, said spokesman Howard High.

The fourth-quarter growth was magnified by one-time events. Farm output was reduced in the third quarter by the Midwest floods, which shaved 0.6 of a percentage point off that quarter’s GDP growth rate. Lower losses in the fourth quarter added 0.4 of a point to the period’s rate.

In addition, scheduling problems at the nation’s auto plants shifted some production from the third to the fourth quarters.

For the future, economists say that growth will slow, though it will keep up a healthy pace. One good sign: the University of Michigan reported Friday that its consumer sentiment index for January jumped to 94.3, the highest since September, 1989.

“People will realize they owe a little more money than they thought they did,” said Raymond Stone, economist and managing director of Stone & McCarthy Research Associates in Princeton, N.J. “Add to that the earthquake . . . and the subsequent loss of retail activity . . . and the loss of wealth (from damaged assets) will show up to modest degree in the GDP and depress first-quarter growth.”

At Dayton Hudson Corp., parent company of the Mervyn’s and Target stores, Chairman Kenneth Macke was cautious about 1994, particularly in light of the recent bad weather and the Los Angeles-area earthquake, which closed four of the company’s stores.

Consumers are “still very concerned about job security, about how much their tax bill is going to be, and the ultimate costs of health care,” he said through a spokeswoman. “As we look at California, we believe the economy there is not going to turn rapidly.”