U.S. economy grew by 0.4% in 2nd quarter Figure was lower than most experts had expected

July 27, 1991|By Kathleen Beeman | Kathleen Beeman,Washington Bureau of The Sun

WASHINGTON -- America began recovering from the recession during the past three months, but the gross national product rose at a mere 0.4 percent annual rate, the Commerce Department reported yesterday, setting off a new debate over the nation's economic health.

While the Bush administration greeted the news as a clear indication of economic recovery, some observers were less optimistic.

After two consecutive quarters of decline of the gross national product, the April-to-June quarter's 0.4 percent increase showed a significant expansion of the GNP, which is the total production of goods and services, the Commerce Department said.

"The advance GNP report brings welcome news for the nation's economy," said J. Antonio Villamil, chief economist for the Commerce Department. "I believe that the recession ended sometime during the second

quarter."

An increase in consumer spending and home investment during the spring contributed to the economy's improvement, Mr. Villamil said. The GNP report showed a 3.6 percent rise in consumer spending and a 3.7 percent rise in investments in new housing.

But consumer confidence has not returned, as shown by the decline in auto sales, according to Markely Roberts, economist for the AFL-CIO. The "Big Three" automakers -- General Motors Corp., Ford Motor Co. and Chrysler Corp. -- together lost more than $1.3 billion in the second quarter. It was the worst second quarter in 11 years for the auto industry.

"We are still in a recession -- the administration is being exceptionally optimistic," Mr. Roberts said. "If you look at the auto industry, which is probably the best indication of consumer spending, you see that consumer confidence is down."

The recession, which officially began in July 1990, was the nation's first economic downturn in almost eight years. From October to December of 1990, the GNP fell at a 1.6 percent annual rate. From January to March, the GNP fell at a 2.8 percent pace.

Michael Boskin, chairman of the president's Council of Economic Advisers, predicted that the recovery will be "modest -- not anemic" in the second half of 1991.

"The recession . . . will have been considerably shorter and shallower than the average post-World War II recession," Mr. Boskin said yesterday in a briefing at the White House.

Sen. Paul S. Sarbanes, D-Md., chairman of Congress' Joint Economic Committee, said yesterday, "This has not been a short and shallow recession." Mr. Sarbanes, who is pushing for passage of a bill that would give extra months of benefits to the unemployed, said that the current 7 percent unemployment rate makes the recession "as severe" as other postwar declines. New jobless claims reached 30,000 during the week of July 13, the Labor Department reported this week.

"The GNP figures are really disappointing," Mr. Sarbanes said. "There is still a lot of misery out there."

Like most of the nation, Maryland's economy is still suffering from a recession, Mr. Sarbanes said.

"We have our problems in Maryland," he said. "But we tend to do somewhat better than the nation as a whole. We are fortunate in that Maryland has a balanced economy."

The Commerce Department said the economy grew at a rate of $4.3 billion during the quarter. The advance GNP report released yesterday is the first of three estimates the department prepares on each quarter.

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