Recent buying binge feeds GNP in last half of '85
The United States economy is bouncing back from the slump it suffered during the first half of 1985. In the July to September period gross national product (GNP), the nation's output of goods and services, grew at a 3.3 percent rate after adjustment for inflation and seasonal factors, the government said Thursday.
That was better than an earlier government estimate of 2.8 percent real growth but less robust than the 5 percent growth that the Reagan administration predicted for the second half. Meeting the administration's growth targets would ``be difficult,'' Commerce Secretary Malcolm Baldrige admitted.
In the year's first half the nation's economy expanded at a 1.1 percent rate, far below the 3 percent or so experts say is necessary to absorb new entrants into the work force and keep the jobless rate from rising.
The recent pickup in economic growth was accompanied by what Commerce Secretary Baldrige called ``remarkably good news on inflation.'' Prices, as measured by a GNP-related measure called the ``fixed weighted price index,'' rose 2.9 percent during the third quarter, the smallest rise in 13 years. In the second quarter prices rose 3.9 percent.
The brightest economic news of 1985 is still to come, many forecasters say. The consensus of private economists surveyed by the newsletter ``Blue Chip Economic Indicators'' is that the current October to December quarter will be the economy's best for the year. The 50 economists surveyed by the Sedona, Arizona-based publication expect GNP growth of 3.5 percent in the fourth quarter. Baldrige says it will be ``at least as good'' as in the third.
Forecasters' relative optimism for the remainder of 1985 is based on the belief that companies, especially automakers, will rebuild inventories depleted by a recent consumer buying binge, thus fueling continued growth. Baldrige said consumer spending accounted for the lion's share of third-quarter GNP growth.
``We will probably get two back-to-back quarters of satisfactory growth for the first time since the first half of last year,'' says Paul Boltz of T. Rowe Price Associates Inc.
The latest GNP figures ``are more or less in line with expectations that the second half would be stonger but not overly robust,'' says Bernard Markstein III of Chase Econometrics. ``We expect it to continue through the first half of '86 and slump following that.''
While the economy is turning in a peppier performance, forecasters are cautious about the outlook for 1986 because the serious problems including large trade and federal budget deficits still exist.
Most private forecasters expect the economy to slow again in the new year. A key reason for the expected slowdown is that the consumer buying binge that fueled good third-quarter GNP numbers forced individuals to cut the rate at which they save. In the third quarter the savings rate sank to 2.9 percent, a 35-year low. The second quarter's savings rate was 5.1 percent.
``At some point, after Christmas, consumers will look at all their bills and say `enough of this,' '' says Dorothea Otte of the Georgia State University Economic Forecasting Project.
There are already some signs of buyer concern. Auto sales in early October dropped 10.2 percent from last year's October levels, as low interest-rate incentives ended at many dealers. That may make auto companies cautious about inventory rebuilding, says Mr. Markstein.
Another cautionary note came Thursday when the government announced that housing starts in September dropped 9 percent from August's rate, to a 1.583 million seasonally adjusted annual rate. Housing statistics tend to jump around from month to month and permits for new contruction rose sharply in September.
Still it is ``scary'' that starts have been relatively flat at a time when mortgage rates have until recently been falling, says David Wyss of Data Resources Inc.