U.S. Economy Slows a Bit in 3rd Quarter

The U.S. economy showed signs of slowing in the fall as the pace of growth was again scaled back, according to government reports released Tuesday that also show that November factory orders were propped up by booming aircraft sales.

The Commerce Department reduced its measure of gross domestic product to a 3.1% annualized rate for the July-September third quarter from the 3.3% rate reported a month ago and the 3.5% initially estimate.

Though still well above so-called trend growth of about 2% to 2.25% that is considered sustainable for the long haul, GDP was trending downward from the first quarter’s sizzling 4.9% rate and from the 3.3% second-quarter expansion. GDP measures goods and services produced within U.S. borders.

Separately, the Commerce Department said orders for costly durable goods jumped 4.8% in November to a seasonally adjusted $195 billion--owing entirely to a surge in aircraft demand, without which November orders would have declined 0.2%.

On Tuesday, industry leader Boeing Co. said Germany’s Lufthansa had ordered five more Boeing 747s for a total of $825 million.

However, shipments of finished manufactured goods--a reflection of current demand--fell for a second straight month in November, signaling that manufacturing output may moderate in early 1998.

“We have a potential Jekyll-and-Hyde economy developing,” said Allen Sinai of Primark Decision Economics Inc. in Boston. He said domestic growth is still expanding, while Asia casts a pall over trade prospects.

“The $64,000 question is can a booming domestic economy continue in the face of what may happen in the external economy?” Sinai said. He added that he expects a $50-billion negative swing in the U.S. trade balance in 1998 as Asia sells more cheap goods to the United States and buys less.

“It’s going to be enough to keep the U.S. economy growing below trend” and keep Federal Reserve Board policymakers from raising rates, he said. “By the end of 1998, we’ll see a bias toward ease or actually some easing.”

Overseas turmoil has helped cause U.S. price inflation to virtually disappear, a benefit that is expected to continue next year as a strong dollar makes imports cheaper for U.S. purchasers of electronics, foreign cars and other goods.

The third-quarter GDP report’s implicit price deflator was revised downward to show a 1.4% annual rate of price increase instead of 1.5%--the weakest pace since a 0.9% advance in the second quarter of 1964.

Analysts said they foresee further modest easing in GDP growth during the fourth quarter, to about 3%, partly because of reduced sales to struggling Asia as U.S. trade partners there, including South Korea, Indonesia--even Japan--seek to regain stability.

At home, there were further signs of potential slackening in domestic demand. Sales at U.S. chain stores fell 0.9% in the week ended Dec. 20 from the previous week, according to the seasonally adjusted BTM/Schroeders weekly chain store index.

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Durable Goods New Orders, in billions of dollars, seasonally adjusted:

Nov.: $195.0

Source: Commerce Department

Gross Domestic Product

Percentage change from previous quarter, annualized rate:

3rd quarter: +3.14%

Source: Commerce Department

Los Angeles Times