Economy Sluggish in 2nd Quarter : Indicators: Revised figures show annual growth of 1.3%. New-home sales fell 9.6% in August, largest drop in six months, but West bucks trend.

The economy grew at a sluggish 1.3% annual rate in the second quarter of 1995, the slowest pace in more than two years but slightly faster than the rate of earlier estimates.

The Commerce Department said Friday that the revised figures do not substantially change the picture of a dramatically weaker economy.

Analysts said most evidence, however, points to a solid recovery in the third quarter, which ends today, and continued improvement for the balance of the year.

In another report, the department said sales of new homes fell 9.6% in August, the largest drop in six months, after having soared to an 18-month high in July. Sales were off in every region except the West, which saw a 2.3% rise to an annualized rate of 218,000. The West is dominated by figures from California.

“The second quarter will clearly end up being the weakest one of 1995,” said economist Bruce Steinberg of Merrill Lynch & Co. “Overall, economic growth remains moderate and inflation therefore remains low.”

A month ago, the government said gross domestic product, which measures the value of all goods and services produced in the nation, advanced at a 1.1% rate in the April-June quarter.

Friday’s upward revision was due to higher military spending and a larger investment by businesses in building inventories. But overall, businesses have been trimming their stockpiles of goods on shelves and in warehouses as the economy weakened this year.

Analysts said in advance of Friday’s report that nearly all the data shows that the nation has avoided a recession and appears headed for the soft landing--that is, moderate growth and inflation--that the Federal Reserve Board has tried to engineer.

Amid signs of improving growth, the Fed’s policy committee left interest rates untouched Tuesday, raising doubts that there will be another cut this year. The central bank trimmed a key rate July 6 but has taken no other action on rates since.

The Commerce Department also said Friday that, using a new method of calculating growth it is phasing in this year, GDP expanded at a 0.7% rate in the second quarter. That also is a bit more rapid than last month’s 0.5% estimate.

The new method, designed to measure price changes more accurately, will formally replace the older system at the end of this year.

The economy has slowed markedly since late last year, when it grew at the fastest rate in a decade. GDP increased at a 2.7% annual rate in the first three months of 1995, after having grown at a booming 5.1% in the fourth quarter of 1994.

In its report on August home sales, the Commerce Department said sales of single-family homes totaled 710,000 at a seasonally adjusted annual rate, down from a revised 785,000 in July. It was the first decline in four months.

The revised July total is the highest since an 823,000 rate in December, 1993.

The July rate had initially been reported at 715,000.

The median price of a new home in August was $133,000, up from $131,100 in July but little changed from the $133,300 of August, 1994.

The South suffered the biggest decline in sales, plunging 19.2% to a 312,000 annual rate. But the month before, sales in the South shot up 28.7% to a 386,000 rate. Analysts had said that rate was not sustainable.

Sales were off 3.8% in the Midwest, to a 128,000 rate, and 1.9% in the Northeast, to 52,000.

The Commerce Department said Friday that after-tax corporate profits grew more slowly in the second quarter, rising a mere 0.8% after surging 3.8% for the first three months of the year.

Inflation remained under control, although a bit higher than in the first three months of the year. One measure of the cost of living tied to GDP rose 3.2% in the second quarter, compared to 3% the previous quarter.

The Commerce Department said consumer spending, which accounts for about two-thirds of GDP, increased at a $30.4-billion rate in the second quarter, compared to $14.3 billion for the previous three months.

Analysts said the buying surge was due largely to discounts as businesses, particularly car dealers, cut prices to reduce excess stock. The gains in consumer purchasing included increased spending on services and purchases of interest-sensitive durable goods.

Inventories subtracted $16.8 billion from GDP in the second quarter as manufacturers slowed production. Still, inventory investment was slightly stronger than in the government’s month-old estimate.

Overall, GDP rose at a $17.7-billion rate in the April-June quarter, compared to $36.3 billion for the first three months of the year. Growth was the weakest since the economy expanded at a 1.2% rate in the first quarter of 1993.

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Slowing GDP

Gross domestic product measures the value of all the goods and services produced by workers in the United States, regardless of ownership. Percentage change from previous quarter:

2nd quarter, 1995: 1.3%

Source: Commerce Department