Economy Barreling Along at End of ’94 : Growth: Sharp upward revision of the GDP to 5.1% surprises economists, who say the brisk pace probably will not last this year.
The nation’s economy grew much faster at the end of last year than previously believed, expanding at a robust 5.1% annual rate in the fourth quarter, the Commerce Department reported Friday. But that brisk pace probably won’t be maintained this year, economists said.
The agency revised upward its estimate of fourth-quarter growth in gross domestic product--a measure of all the goods and services produced in the United States--by an eye-opening one-half percentage point. Most economists were expecting little or no change in the department’s second and final revision. The first revision, estimating 4.6% growth in the quarter, was released a month ago. The initial estimate, released in January, was of 4.5% growth.
“It indicates the economy finished the last year with a whole lot of momentum,” said Frank McCormick, a vice president and senior economist at Bank of America in San Francisco. “People were buying lots of goods and services in the fourth quarter.”
Indeed, the GDP report inspired fears of renewed inflation, which sent stocks, bonds and the dollar tumbling in early trading Friday. Stocks and bonds largely recovered later in the day, but the dollar did not. The Dow Jones industrial average slipped 14.87 points to 4,157.69 on Friday, after falling more than 50 points in early trading.
Surges in consumer spending, business investment and exports helped push GDP up 4.1% for all of 1994, the best showing in a decade. That was revised from an earlier estimate of 4.0% growth for the year.
In addition, the Commerce Department reported that inflation remained low at 2.6% in the fourth quarter and that after-tax profits of U.S. corporations rose a strong 2.5% during the period.
But while growth surged at the end of last year, that momentum has not been maintained so far this year, McCormick said. Separate economic reports have shown first-quarter slowdowns in auto sales, consumer spending and home building.
The Commerce Department also said Friday that orders to U.S. factories fell 0.2% in February, the first decline since October, with demand slumping for communications gear, electronic equipment, metals and fabricated metal products.
However, McCormick added, it is not clear whether the decline in economic growth is a temporary pause or a more fundamental response to the Federal Reserve Board’s tightening of monetary policy during the last 14 months.
“This makes the financial markets nervous,” McCormick said.
Lynn Reaser, senior vice president and chief economist at First Interstate Bank in Los Angeles, said the bank is estimating that first quarter GDP will manage less than 3% growth.
But Southern California and the state as a whole will find itself in the peculiar position of outpacing the nation this year, Reaser said.
“Southern California will now be moving in the opposite direction of the rest of the country,” Reaser said, with growth accelerating locally.
What’s more, California will benefit from the sort of nationwide boosts in capital goods investment that occurred in the fourth quarter. In particular, spending on commercial aircraft and industrial equipment during the last three months of the year were found to be higher than previously thought, the government said.
“That is good news for California because we will continue to benefit from the strengthening in demand for computers and other equipment,” Reaser said.
The Commerce Department said the economy’s annual growth rate was $66.8 billion in the fourth quarter, compared to $52.9 billion (or 4%) in the third quarter. The last time the economy grew more quickly was during the fourth quarter of 1993, when it posted a 6.3% increase.
The annual growth rate of 4.1% was the best yearly performance since 1984, when the economy grew 6.2%. In 1993, GDP increased 3.1%. The Commerce Department releases three estimates of GDP performance for each quarter, revising them as more economic information becomes available.
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Fourth-Quarter Rise
The gross domestic product measures all the goods and services produced in the United States. Percentage change from previous quarter:
Fourth quarter, 1994: 5.1%
Source: Commerce Department
Factory Orders
Total new orders in billions of dollars, seasonally adjusted:
Feb. 1995: $301.2
Source: Commerce Department
