Share this story
Close X
Switch to Desktop Site

US economic growth rate drops abruptly

About these ads

With economic growth slowing faster than expected, the United States economy could slip into a recession if consumers do not go on a Christmas buying spree, forecasters say.

The federal government reported Tuesday that, in inflation-adjusted figures, real gross national product - the value of the nation's output of goods and services - increased at a 1.9 percent seasonally adjusted annual rate in the third quarter of the year. By contrast, the economy grew at a 10.1 percent rate during the first quarter and a 7.1 percent rate the second quarter.

A rough government estimate had put third-quarter GNP growth at 3.6 percent. But that ''flash'' figure was later lowered to 2.7 percent in a preliminary estimate as more data for the month of September became available.

The recent deterioration in GNP estimates means that ''we can conclude September was a down month for GNP,'' says Donald Ratajczak, director of the Georgia State University Forecasting Project. ''The third quarter continued to deteriorate and (the economy) now has fallen into negative territory.''

The recent sluggish pace of economic growth is expected to make it even harder for the Reagan administration to rely heavily on growth to balance the federal budget. It also is expected to make gains against unemployment harder to achieve. And the slower growth rate may put additional pressure on the Federal Reserve Board to loosen its grip on the nation's money supply, economists say.

Slower growth affects the federal budget by cutting government tax revenues while increasing spending for unemployment and other social programs.

Treasury Secretary Donald T. Regan has already criticized the Fed for keeping too tight a grip on the money supply, thus increasing the danger of a recession. Although the narrowly defined money-supply category M-1 grew in the week ending Nov. 5, it remains only $3.3 billion above the bottom of the Fed's target range.

''These kinds of (GNP) numbers have got to make the Fed worry,'' says Robert Wescott, senior economist at Wharton Econometric Forecasting Associates. The government said the smaller increase in third-quarter GNP was largely the result of a slowdown in consumer spending and a widening foreign-trade deficit. Most private forecasters still say shoppers will return after a buying pause and that at least over the next six months the nation can avoid a recession. One reason sales are expected to grow is that consumer confidence, asmeasured by the University of Michigan Survey Research Center, remains near its highest point in a decade.


Page:   1   |   2

Follow Stories Like This
Get the Monitor stories you care about delivered to your inbox.