3rd-quarter rise in GNP is likely just a sawtooth, not a prelude to a spurt
SOMETHING of a comeback in the third-quarter gross national product from its virtual leveling off in the second quarter should not be taken as an indication that the United States economy is now safely off and running. A 2.9 percent rise in the third quarter in the annual rate of the nation's production of goods and services in constant dollars (real GNP) represents the seventh quarter since 1984 in which the rate of change has successively speeded up and slowed down.
Since 1984, real GNP's rate of rise has speeded up in first-quarter 1985, slowed in the second quarter, speeded up in the third quarter, slowed in the fourth quarter, speeded up in first-quarter 1986, slowed in the second quarter, and speeded up in the third quarter.
Since second-quarter 1985, each speeding up and slowing down has been at successively lesser rates than the previous one. Thus, the underlying rate of rise in GNP since as far back as early 1984 has been slowing, down, despite intermittent quarterly accelerations.
This slowing of economic growth, known as a growth recession; the fantastic worsening of the federal deficit during such a period; and the lowering of the prime rate as well - these three developments are unprecedented in the post-World War II years.
If the speeding/slowing pattern since 1984 continues, growth in fourth-quarter 1986 would be less than the second quarter's 0.6 percent. A decline is unlikely. It would designate the beginning of outright recession, and monthly data beyond the third quarter indicate no such decline has occurred.
There is no longer any question, however, of whether GNP will achieve a 4 percent gain by the end of the year from the end of 1985.
That early Reagan administration forecast was actually abandoned when the minor second-quarter GNP gain became known. But then a 4 percent increase in GNP was forecast over the second half of 1986. The 2.9 percent annual rate third-quarter rise now makes that 4 percent forecast virtually impossible. Fourth-quarter GNP would have to rise by 5 percent to do so. There is nothing happening in the economy to suggest such a strong fourth quarter is in hand.
There could be some lift from a return to work at USX Corporation, but the auto situation is not encouraging. With the auto sales promotion over, demand for new 1987 cars is restrained and auto producers, especially GM, are tempering production.
If GNP can even turn in a fourth-quarter rise equal to the third quarter, the 1986 gain from fourth-quarter 1985 would be 2.5 percent, a long, long way from the 4 percent first contemplated by the US administration and much less than first forecast by most economists.
The economy has been bumbling along. There is no good evidence as yet that the economy is emerging from its growth recession of the last 2 years.
One area of the economy that makes any revitalization of it improbable is the housing industry. Housing permits, which effected a short-lived minor recovery in March-April 1986, have now fallen steadily backward since April to a two-year low in October.
The early 1984 peak in housing permits has never been regained. That peak preceded the mid-1984 end of the growth recovery from the 1981-82 recession.
Thus, the latest April 1986 peak in housing permits is an important sign the economy is not reasserting itself, nor is it about to reassert itself.
Richard Nenneman, whose column normally appears in this space, is on vacation. Leonard Lempert is director of Statistical Indicator Associates in North Egremont, Mass.