Third-quarter growth keeps downturn at bay, but questions still lurk
THE third-quarter gross national product numbers are out. We're still in business, folks, is about all they say. Recession isn't just around the corner, but neither is there any strong evidence that the economy is about to grow much faster.
Third-quarter growth was at a 2.4 percent annual rate, much higher than the second quarter, but still far below the Reagan administration's hope for 4 percent growth for the second half of the year.
Final sales -- that is, GNP without changes in business inventories -- rose more strongly. They were up at a 4.6 percent annual rate, well above the 3.4 percent rate of the second quarter.
Normally this would be taken as a sign that the economy would pick up, as inventories were sold off during the quarter and would have to be replaced just to maintain the same level of buying. Two-thirds of the increase in final sales, however, was accounted for by automobile sales. With the end of the low-interest-rate gimmicks, these sales are not expected to maintain themselves in the last quarter of the year.
The savings rate also dipped to an unsustainable low during the quarter. That's another way of saying that consumers were spending too much and will have to retract somewhat in coming months. Figures released the next day showed that consumer spending in the month of September rose 1.6 percent, while personal incomes were up only 0.3 percent. That kind of discrepancy that can't go on for long.
The two major unknowns, as one looks forward at this quarter and the new year, are the effect of the tax law changes and whether the foreign trade situation is going to improve.
Both points were mentioned in the reaction to the September rise in durable-goods orders. Those orders were up 4.9 percent in the month, the best increase in almost two years. The rise was taken as a partial sign that some manufacturers have seen the worst of the slippage of business overseas and are ready to invest more heavily at home. But it was also explained somewhat negatively as an attempt to get assets on the books before tax changes go into effect.
During the week, President Reagan signed the tax reform bill into law, calling it ``less a reform than a revolution.'' The President has been unguarded in his praise for the law, although it isn't at all clear that it represents an increase in fairness for most taxpayers or what its economic effects will be.
In that respect, it is more a revolution than a reform, since the story of revolutions is that they frequently don't end as planned. The law's biggest plus remains its virtual elimination of most tax shelters, which had rightly become a symbol of inequity.
The other unknown hanging over the economy is the trade deficit. Even a stabilization of the deficit will be a plus for the economy. But much more than that is needed. This year's anticipated $170 billion deficit must be drastically cut, not just for one year but for years into the future, if the economic strength of America is not to be permanently sapped.
This column has strongly supported the Reagan administration's adherence to free-trade principles as hastening the evolution to a truly global economy.
But both the political process and economic urgency may call for a harder look at situations where the US seems to be virtually shut out of other countries' markets, even if it is because of so-called cultural preferences rather than overt legal barriers.
In any case, the outlook for the trade balance and the effects of the tax reform remain the immediate question marks for an economy that after four years of expansion clearly has no untapped strength of its own to be exploited.