GNP declined 2.8% during first 3 months of 1991

April 27, 1991|By Robert D. Hershey Jr. | Robert D. Hershey Jr.,New York Times News Service

WASHINGTON -- The economy contracted more rapidly in the first three months of the year than it did at the end of 1990, as national output recorded its first consecutive quarters of decline since the recession of 1981-82, the Commerce Department reported yesterday.

Most analysts had come to expect in recent weeks that the decline would exceed the fourth quarter's 1.6 percent annual pace, and yesterday's report, which showed a 2.8 percent rate of decline in the January-March period, was not seen as significantly worsening prospects for pulling out of recession. Some analysts still say recovery will begin by midyear.

The data on the output of goods and services were accompanied by what appeared to be worrisome figures on inflation -- various gauges indicated annual rates above 5 percent -- but close examination suggested that these were aberrations related to imported oil.

Still, the decline in the gross national product reflected broad weakness in the economy, which is now officially in recession, and there are few signs of recovery other than in residential real estate.

"It's not clear you're yet approaching the trough," observed M. Kathryn Eickhoff, a New York consultant and former economist for the Office of Management and Budget. She said it was difficult to see how GNP could expand in the current quarter.

But the Bush administration clung to its forecast of a spring upturn, with Michael R. Darby, undersecretary of commerce for economic affairs, declaring that "a small positive number is certainly within the realm of probability."

But Mr. Darby cautioned, "We are moving into a transition stage, so expect cross-currents in various aspects of economic activity for several months yet."

The contraction was officially designated a recession on Thursday by the National Bureau of Economic Research, which said that last July was the starting point even though GNP advanced at a 1.4 percent rate in the third quarter.

Yesterday's report of a second straight quarterly decline in gross national product fulfills the popular definition of a recession.

Nearly every sector contributed to the first-quarter decline. Spending on personal consumption, which accounts for 65 percent of the economy, fell at an annual rate of $9.5 billion, or 1.4 percent, after a 3.4 percent rate of decline in the fourth quarter.

This was the first time since 1989 that consumer spending fell for two straight quarters.

An even bigger drag was an annualized drop of $19.8 billion, or 14.4 percent, in business investment, mainly reflecting cutbacks orders for durable equipment.

Mr. Darby said this might reflect temporary deferrals during the Persian Gulf war, and he cited more recent reports showing that investment intentions had steadied.

But the National Association of Manufacturers said business investment, which had been relatively buoyant because of increases for computers and other office automation equipment, was now "following its normal cyclical pattern of falling sharply during recessions."

Purchases of goods and services by all levels of government also fell, an infrequent occurrence.

Despite the war, federal spending was $3.1 billion lower, with $500 million of that accounted for by the military.

Department officials said that the war had only a negligible effect on the economy and that they could not even tell whether the effect was to raise or lower GNP.

The war was largely fought from inventories, specialists have said, providing no gain to GNP until the stockpiles are replenished.

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