Business group, skeptical of growth claim, foresees downward revision

October 30, 1992|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON -- A leading business group yesterday

questioned the economic growth figure President Bush has been campaigning on this week and said it was likely to be revised downward after the election.

The Conference Board, a business leadership group that specializes in economic analysis, took issue with the announcement this week by the Commerce Department of a 2.7 percent third-quarter growth in the gross domestic product, the total of the nation's goods and services.

"Recent employment, production, and consumer confidence indicators all point to a much weaker economy. . . . The U.S. Commerce Department is likely to revise its preliminary GDP estimate downward," the board said in an unusual public statement.

Ken Goldstein, economist with the Conference Board, said: "I am not trying to suggest these are cooked numbers. I am trying to suggest the assumptions that were used just look a little more out of sync than they usually are. This was not a normal report."

Many independent economists expressed surprise at the level of economic strength suggested by the third-quarter figure when it was announced Tuesday, and several said yesterday that they too expected it to be revised downward.

Mr. Bush seized on the GDP increase, the first really positive economic statistic to be published during the campaign, as proof that his policies were working and said it showed that the United States was "going to lead the entire world into economic recovery."

Campaigning in Michigan yesterday, he criticized the news media for its "negative" bias and said: "Things have dramatically changed out in the country. Some of it is because, I think, people now realize that, though we have economic difficulties, the economy is not as sick as the opposition would have you believe."

Preliminary estimate

The Commerce Department figure was a preliminary estimate, and it is normal for such statistics to be revised as firmer information is gathered. In the GDP figure, for instance, the September import-export figures were projections. The real trade figures will be announced later.

But several elements contributing to the 2.7 percent growth rate raised questions among surprised economists, who were expecting a figure closer to 2 percent, or lower.

One puzzle: Why did defense spending suddenly increase in the third quarter after five quarters of consistent decline in line with the policy of military cutbacks? Donald Ratajczak, director of Georgia State University's Economic Forecasting Center, who tracks military shipments, said that he could not find sufficient evidence to justify the 7 percent increase in defense spending during the July-September period.

"You scratch your head and say where did they get the 7 percent increase in defense spending. You may say how in the world are we so surprised by the number? No. 1, we were tracking those September increases in shipments. No one saw them. There was no evidence they were developing. So we are surprised when we see them."

He added: "I would doubt that the Department of Commerce would have put those numbers together on a political basis. I would not doubt that the spending pattern used by the Defense Department was used for political purposes."

The implication is that the Pentagon timed its spending program to increase during the campaign period, giving a boost to the economy to help Mr. Bush's chances of re-election.

"I would not blame the Department of Commerce. I would blame the Pentagon," said Mr. Ratajczak.

Service purchases

Robert Parker, associate director of national economic accounts who oversees production of the GDP figure for the Commerce Department, said that the increase in defense spending could have taken independent economists by surprise because half the increase was in purchases of services, which are harder to track than shipments of hardware.

He added that the Office of Management and Budget had earmarked "extremely strong outlays" for defense during the third quarter in its budget. He did not dispute that the Pentagon's spending schedule could have been politically motivated.

Pentagon officials were not available for comment last night.

Another puzzle in the GDP figure: What persuaded consumers to draw down their savings to fund an impressive 3.4 percent spending spree when their real incomes and employment prospects were flat or declining?

Charles McMillion, of the McMillion Business Group in Washington, said that it was "very peculiar" that consumers would feel confident to draw down their savings to buy durable goods when there was a decline in per capita income and a drop in consumer confidence.

"It's just very odd that the three of these things would occur together," he said, adding: "This is the first time I have ever felt any queasiness at all in the operations of the Commerce Department."

Baltimore Sun Articles
|
|
|
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.