U.S. Growth Falls to 2.2% During 3rd Quarter

The nation’s economic growth slowed during the summer to an annual rate of 2.2%, the Commerce Department reported Wednesday, but most experts believe the general outlook is for steady growth with minimal levels of inflation.

The economy is running “slightly below potential,” said Jerry Jasinowski, president of the National Assn. of Manufacturers.

The Federal Reserve Board, issuing a periodic business report on regional conditions, agreed with the Commerce Department that business activity has slowed but is basically healthy.

As depicted in the Fed report, California is a state of strong contrasts, with booming telecommunications and software industries and rising farm exports on one hand, and a woefully weak housing industry, especially in Southern California, on the other.

Market watchers are now betting that the Fed, satisfied with the lack of price pressures, will leave interest rates unchanged at its next policy meeting Nov. 13.

Political reactions to Wednesday’s news divided along partisan lines: The Clinton administration hailed the continued signs of economic well-being, while supporters of Bob Dole lamented an expansion, now in its fifth year, that is the least robust in 100 years.

“Our economy is growing, we are investing in our future, our incomes are rising, inflation remains subdued and our confidence in the future is strong,” said Commerce Secretary Mickey Kantor, noting that the economy has expanded for 15 straight quarters under President Clinton.

Lawrence Hunter, chief economist for Empower America, a conservative political advocacy group founded by GOP vice presidential candidate Jack Kemp, said the economy “is in the doldrums, it is lackluster.” Real wages, which measure the buying power of workers, have been falling, he said.

The puzzling slowdown in American productivity remains a subject of intense speculation and debate by both parties and many experts.

Productivity--the amount produced by an hour of work or a dollar’s worth of machinery and equipment--grew at more than 3% a year in the 1960s and has been dropping ever since, falling to a “minuscule” 0.5% during the past four years, according to John Wilson, chief economist with Bank of America. Slower productivity means a meager rise in wages and a sluggish gain in the standard of living.

The economic growth rate of 2.2% during the third quarter compared with an extraordinary figure of 4.7% for the period from April through June. The figures measure the gross domestic product, the value of all goods and services produced in the United States.

The spring surge was attributed to a flurry of pent-up spending by consumers after a harsh winter and the disruptions caused by a temporary federal government shutdown.

Consumer spending advanced by a modest 0.4% during the last quarter, compared with a hefty 3.4% during the second-quarter, the Commerce Department noted. Consumer spending accounts for two-thirds of all economic activity.

Last quarter’s overall growth rate of 2.2% for the whole economy is a more normal pace, “right on track with what people think is the long-term growth rate of the economy,” said Bert Ely, a financial consultant in Alexandria, Va.

The conventional wisdom, Ely said, is that the economy can expand at a rate of 2% to 2.5% annually without triggering inflation. That is why he and many others believe the Fed will avoid any immediate changes in interest rates.

The consumption decline in the last quarter included a sharp drop in new-car sales. If car sales recover, as expected, the economy should perk up.

The Commerce Department also reported Wednesday that new-home sales across the nation dipped slightly in September, but still remained at comparatively high levels. Single-family homes were selling at an annual rate of 816,000 last month, down from a revised figure of 820,000 in August.

“Moderate expansion” was the Fed’s summary description of most regions in its report on current economic conditions.

In California, sales are strong for high-technology firms, computer producers and telecommunications companies. Sales of agricultural products were “stimulated by rising export demand, largely coming from China and other countries in Southeast Asia,” the Fed report noted.

Construction and real estate, robust in most of the country, “continues to be weak in Southern California,” the Fed said. “Any existing strength was primarily in nonresidential” construction, the study said.

Many California housing markets are so weak that home construction in the state is barely more than 100,000 units a year.