Economy shows surprising surge in third quarter But good news about GDP may be too late for Bush

October 28, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau The New York Times News Service contributed to this article.

WASHINGTON -- Finally, the economy gave President Bush something to boast about yesterday: a surprisingly strong spurt of activity during the third quarter.

Yesterday's report, the last major economic indicator before next week's election, showed the gross domestic product, the total output of the nation's goods and services, grew from July to September at an annual rate of 2.7 percent, outstripping an expected rise of 1.6 percent.

"This is the sixth straight quarter [of growth]. It shows that this economy is moving," said Mr. Bush, whose re-election campaign has been hobbled by the sluggish economy.

The figures were strong enough to push the economy technically from recovery into expansion, but the key question was whether it was enough to keep Mr. Bush in the White House.

Many economists said it was too late to have any major impact on the election result, and some questioned whether the strong performance would be repeated in the fourth quarter.

But Mr. Bush will obviously try to use this latest statistic during the last days of the campaign to bolster his claim to a renewed term of eco

nomic leadership.

"It depends how he plays it," said David Kelly, senior economist with the Boston Company Economic Advisers Inc. "He can certainly say this is more evidence that the economy is growing.

"However, he has to be very careful not to say this recession is all a media concoction and the economy is doing very well. We have not had employment growth to talk about in two years, and people are not wrong in thinking the economy, in terms of income, is stagnant."

Indeed, in a separate Labor Department report issued yesterday, wages, salaries and benefits for the year that ended Sept. 30 posted their smallest gain in five years. The Employment Cost Index advanced only 3.5 percent over the period, against 4.3 percent a year earlier. It was the smallest jump since the 3.4 percent during the year that ended September 1987.

The spurt in overall output was fueled primarily by a strong 3.4 percent jump in consumer demand, an unexpected 2 percent increase in government spending and a buildup of business inventories.

An increase in inventories is an unclear indicator, suggesting either a slowdown in overall purchasing or a stocking up by optimistic merchants who expect sales to improve.

But many analysts thought the third-quarter buildup was involuntary. Newly produced goods contribute to GDP even if they languish on retail or wholesale shelves, but their existence also tends to retard future production.

The government spending included a striking 6.9 percent rate of increase in defense spending, which confounded the trend toward post-Cold War military cuts.

Clearly, increased defense spending will not be sustained, and the consumer's ability or willingness to buy remains questionable.

In fact, the $27.6 billion buying spree during the third quarter, an annualized boost of 3.4 percent to consumer spending, was paid for largely out of personal savings, according to Commerce Department officials. They noted that real incomes did not increase at all during the period, while the savings rate dropped from 5.3 percent in the second quarter to 4.5 percent in the third.

Economists differed over whether economic growth in the fourth quarter would match the third quarter's reassuring performance, but the new figure was generally judged as auguring well for the longer-term economy.

"The next president is going to get a windfall," said Charles Renfro, of Alpha Metrix Corp., a Philadelphia consultancy. "I think it's a take-off point. I think we are going to see a much stronger economy next year than this."

Paul W. Boltz, financial economist with T. Rowe Price in Baltimore, said: "I kind of think the next president, whoever that is, is going to look pretty smart. If the economy stays at this pace in 1993, and picks up to over 3 percent in 1994 on a consistent basis, what more do you want?"

Philip Braverman, chief economist with DKB Securities Corp. in New York, remained a pessimist, saying: "We don't have a recovery here. The economy at best is sputtering. I still characterize the economy as a submarine that happens to be on the surface, and the question is does it stay on the surface or dive. It has not been retro-fitted as an airplane. There are no engines to allow for lift-off."

Even as the economic boost was announced, the Conference Board, a New York business group, lowered its Consumer Confidence Index for the fourth straight month. The index stood at 50.3, almost half of the 1985 base rate of 100, reflecting broad lack of confidence in the job and real estate markets.

"Most people are going to claim we are still in a recession because they are not going to see the jobs and incomes out there that they want to see," said Cynthia Latta, of Data Resources, Boston.

The third-quarter boost took the inflation-adjusted annual GDP total to $4.92 trillion, slightly above the peak of the pre-recession business cycle of $4.9 trillion in the second quarter of 1990.

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