Latest GNP data confirm '84 a tough act to follow
The year 1985 has not been not a banner one for the United States economy. New government figures released Friday indicate that the US economy ground out 2.4 percent more goods and services this year than it did last year. That was the economy's most sluggish performance since 1982, when the nation was mired in a recession.
Of course, 1984 ``was a tough act to follow,'' says Robert Gough, vice-president of Data Resources Inc. The economy grew 6.6 percent in 1984, the second best year since the end of World War II. In an average year the economy grows around 3 percent.
If the 1985 growth rate of 2.4 percent were to continue, it would sharply boost estimates of the federal budget deficit. Slow growth tends to boost government spending and depress tax receipts. The Reagan administration has been assuming steady inflation-adjusted economic growth of 4 percent over the next several years.
If growth at the pace estimated for all of 1985 were to continue, ``it would raise the deficit over our present estimates,'' said Beryl Sprinkel, chairman of the President's Council of Economic Advisers. ``We don't anticipate that the economy next year will grow nearly as slowly as 2.4 [percent],'' he said at a White House briefing on Friday. The estimate for '85 includes a ``flash'' reading of 3.2 percent growth in the fourth quarter. This figure is subject to substantial revisions.
The administration is still working on its forecast for 1986. But other economic forecasters have finished theirs and are sharply split on what will happen next year.
Data Resources, the nation's largest forecasting firm, expects growth next year of only 1.75 percent. A growth rate that low would cause the unemployment rate to rise.
Merrill Lynch Economics, an arm of the nation's largest brokerage house, had been predicting growth of 3 percent for 1986. But based on the flurry of new figures, the projection may be boosted to 3.5 percent, according to Merrill economist Joseph Carson.
There is less debate among forecasters about the outlook for inflation. November's consumer price index (CPI) shot up 0.6 percent because of sharp rises in the prices of beef and gasoline. If that rate were to continue for a year, prices would rise at a 6.9 percent annual clip.
But forceasters say consumers should not worry about renewed rampant inflation because the items currently pushing up the CPI are not expected to remain troublesome. For example, the recent decision by the Organization of Petroleum Exporting Countries to stress market share over price is expected to drive down energy costs after the winter heating season ends. And ``agriculture in general is not going to be a large contributor to inflation,'' Mr. Carson adds.
While the economic future may be in doubt, the economic past is now coming into sharper focus. The government Friday released results of a massive revision of economic statistics. Among the findings:
The average annual growth rate of real gross national product (GNP) from 1972-84 was 2.5 percent, 0.2 percentage points lower than in the previous estimates.
The average annual growth in prices from 1972-84, as measured by the GNP fixed-weighted price index, was 6.6 percent, vs. a previous estimate of 7.3 percent. GRAPH: US economic growth rate Percent change in real GNP 1982: -2.5 percent 1983: 3.4 percent 1984: 6.6 percent 1985: 2.4 e 1985: 1st Q: 3.7 percent 2nd Q: 1.1 percent 3rd Q: 3.0 percent 4th Q 3.2 f Source: US Commerce Department