U.S. Economy Notches Fastest Gain Since ’88
The nation’s economic boom accelerated during the final three months of 1997 despite the financial turmoil in Asia, bringing the U.S. growth rate for the year to its fastest pace since 1988, the government reported Friday.
Preliminary figures from the Commerce Department showed that the real gross domestic product--the nation’s total economic output, after adjustment for inflation--rose at an annual rate of 4.3% between October and December, up from a 3.1% annual rate in the previous quarter.
That lifted the growth rate for all of 1997 to 3.8%--the fastest since 1988, when the economy reached a similar rate of growth under stimulus from the government, which was seeking to offset the October 1987 stock market crash.
Meanwhile, the GDP inflation index, considered the broadest measure of prices in the economy, rose at a scant 1.5% annual rate last quarter--essentially unchanged from the 1.4% pace recorded in the autumn quarter. Inflation for all of 1997 was 2%, the lowest since 1965.
Although most analysts expect the U.S. economy to slow significantly during the next six months as a result of the Asian economic slump, economists said the 1997 performance has positioned the United States to withstand the impact without serious damage.
“The basic picture is that the U.S. is in a good spot as we wait for the slump in Asia to take hold,” said Robert G. Dederick, economist for Northern Trust Co. in Chicago. “We had another sparkling performance--solid growth and low inflation.”
President Clinton, addressing a conference of mayors here, claimed credit for the economy’s good performance, asserting that the “economic strategy that we have embraced--of fiscal discipline, expanded trade and investment in our people and our future--is working.”
The renewed surge in growth reflected solid gains in most major sectors of the economy. Consumer spending rose at a 3.2% annual rate during the quarter, following a 5.6% pace from July through September. Residential construction surged at a 10.4% annual rate, up from 2.7%.
Moreover, despite the Asian slump, which is expected to crimp the sales of American goods abroad, U.S. exports soared at an 11.3% annual rate, up from a 4.4% pace in the previous quarter. Imports edged up at a 1.3% pace.
There also were some signs of weakness: Business investment--both capital spending and construction of facilities--declined at a 3.9% annual rate. And businesses accumulated larger stocks of unsold inventories, suggesting they may slow production later.
Nevertheless, analysts pointed out that the end-of-year dip in business investment followed an enormous increase in the autumn quarter and may reflect only a temporary adjustment. Inventory figures also have proved volatile in previous quarters.
“This is still the best economy we’ve seen in a generation,” said David A. Wyss, chief economist for Standard & Poor’s/DRI, an economic forecasting firm.
Under ordinary circumstances, analysts said, the acceleration of the boom last quarter might well have prompted the Federal Reserve Board to raise interest rates. Policymakers have been worried that rising wage pressures might soon reignite inflation.
However, the Federal Reserve Board has made it clear that it expects the Asian economic crisis to begin exerting a drag on the U.S. economy that, according to Chairman Alan Greenspan, could help dampen inflation pressures here.
As a result, analysts expect the board’s policy-setting Federal Open Market Committee to keep interest rates steady at its next regular meeting, scheduled for Tuesday and Wednesday. Greenspan reinforced that analysis in a separate hearing Thursday.
The fourth quarter’s strength in consumer spending reflected Americans’ continuing confidence in the performance of the U.S. economy despite the financial woes in Asia.
Although the Asian situation has crimped corporate profits in some industries and regions of the United States, it still has not begun to have a visible effect across the U.S. economy as a whole. Greenspan said Thursday he expects to see an effect by summer.
Most analysts expect the Asian slump to reduce economic growth in the United States by just under a percentage point in 1998, as hard-hit Asian businesses cut back on purchases of American goods and as Asian goods become more competitive here.
Even so, economists say such a falloff could bring the economy’s growth rate to the 2%- to 2.5%-annual pace the Fed and the Clinton administration have said they are seeking.
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GROSS DOMESTIC PRODUCT
Percentage change from previous quarter, annualized rate:
4th quarter ('97): +4.3%
Source: Commerce Department