Revised Figures Show U.S. Growth Spurt
The economy sprinted at a 4.8% annual rate during the first three months of 1998, revised government figures show. But declining corporate profits, a deteriorating trade balance and a record buildup of unsold goods suggest a sharp slowdown ahead.
“The first quarter was the mountaintop. We’re clearly going downhill from here,” said economist Sung Won Sohn of Norwest Corp. in Minneapolis.
The seasonally adjusted annual growth rate in the real gross domestic product was even faster than the 4.2% initially reported last month, the Commerce Department said Thursday.
However, the government attributed the upward revision--and almost a third of total growth during the quarter--to a record backup of unsold goods on shelves and back lots.
Business inventories grew at a $100.7 billion annual rate in the quarter. That is about three times what is considered normal and came atop a whopping $74 billion addition to inventories in the fourth quarter.
That suggests American manufacturers may cut production to allow inventories to be sold off, especially if, as expected, consumers can’t keep increasing their spending at the first quarter’s red-hot 6.1% rate.
“We saw a massive front-loading of consumer demand and construction, caused in part by unusually warm weather,” said economist Jerry Jasinowski, president of the National Assn. of Manufacturers. “None of these gains . . . are sustainable.”
On the surface, a separate report from the Commerce Department appeared to show economic strength spilling over into the current quarter. Orders to factories for big-ticket durable goods shot up 2.6% in April, the biggest gain in five months.
But the increase was concentrated in two narrow and volatile categories: military goods, up 52%, and civilian aircraft, up 41%. Excluding them, orders slipped 0.2%.
In a separate government report, the Labor Department said the number of applications for unemployment benefits declined by a slight 2,000 last week to 312,000.
The Conference Board, meanwhile, said the nation’s major newspapers posted fewer help-wanted advertisements in May, but not enough to signal a weakening demand for labor. The private business research group said its monthly advertising index slipped to 91 in April, down from 93 in March but up five points from a year earlier.
The high demand for labor is a negative for employers.
With cheap imports pouring from Asian countries with devalued currencies, U.S. companies can’t raise their prices too much for fear of losing sales. At the same time, they’ve had to pay gradually accelerating wage increases to keep and attract qualified workers.
That adds up to a profit squeeze. In the first-quarter GDP report, the Commerce Department said after-tax corporate profits fell 2.2% from the previous quarter. That came on top of a 2.3% drop in the fourth quarter, the worst in nearly four years.
Sohn predicted profits this year will rise only 4% to 5% for large firms after seven consecutive years of double-digit gains.
In addition to consumer spending, growth in the first quarter was driven by a 27.5% rise in business investment in new equipment, much of it computers. That was the largest gain in 14 1/2 years.
A housing boom, spurred by low mortgage rates, also contributed.
Spending on residential construction soared at a 16.1% annual rate, the best in nearly two years.
Detracting from growth were a deterioration in trade, a decline in military spending and a drop in commercial construction. Imports surged at a 17.7% annual rate while exports fell at a 3% rate, the worst in 3 1/2 years.
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Durable Goods
New orders, in billions of dollars, seasonally adjusted:
April: $191.2 billion
Source: Commerce Department
Gross Domestic Product
Percentage change from previous quarter, annualized rate:
1st quarter: +4.8%
Source: Commerce Department
