1st-quarter growth slowest since 1991 Consumer demand, exports lagged

May 29, 1993|By Gilbert A. Lewthwaite | Gilbert A. Lewthwaite,Washington Bureau

WASHINGTON THE ASSOCIATED PRESS CONTRIBUTED TO THIS ARTICLE. — WASHINGTON -- Limp consumer demand and poor export performance reduced the nation's economic growth during the first quarter to its weakest pace in more than a year, according to revised figures released yesterday.

Gross domestic product, the total output of goods and services in the United States, clocked in at a sluggish annual growth rate of 0.9 percent, well below official and private expectations and far behind the robust 4.9 percent spurt in the final quarter of last year. The level was just half the preliminary estimate of 1.8 percent released a month ago.

The anemic domestic growth was compounded by recession in Europe and Japan, which held down demand in two of the nation's major export markets and left the United States with its largest trade gap in four years, a revised $29.07 billion for the first quarter.

The GDP -- which grew in the first quarter at the slowest pace since the fourth quarter of 1991, when growth was 0.6 percent -- would have declined except for a buildup in business inventories, mainly of imported goods.

"I don't think there's any silver lining to these reports, really," said Robert Brusca, chief economist with Nikko Securities in New York.

"The economy is losing momentum," he said, adding that he believes growth could be further weakened by passage of the Clinton administration's tax bill -- approved by the House of Representatives this week and now before the Senate -- as well as the prospect of additional taxes to finance health care reform.

"I see all kinds of negatives," he said.

The stock market, emboldened recently by the better book balances that have made corporations more competitive and profitable, retreated sharply under yesterday's gloom. The Dow Jones industrial average ended the day down 27.40 points.

According to the Commerce Department figures, much of the slowdown in GDP growth came from a sharp reduction in the growth rate of consumer spending, to 1.2 percent in the first quarter from 5.1 percent in the fourth quarter of 1992.

The government also pared back spending in the first quarter. U.S. government spending dropped an annual 7.3 percent, led by defense spending, which was down 25.9 percent, the biggest drop since the figures started being recorded in 1972.

Business investment in new equipment and machinery was one of the bright spots -- up an annual 16.5 percent, a harbinger of increased productivity. After-tax corporate profits rose 5.3 percent during the first quarter, following an 8.5 percent rise in the fourth quarter.

The housing component of GDP was particularly weak, with residential construction down at an annual rate of 0.2 percent, a striking pullback after the 25.1 percent annual rate increase in the previous quarter.

dTC Lyle Gramley, chief economist with the Mortgage Bankers Association, said favorable weather led to the surge late last year and that unfavorable weather caused the slump early this year.

The surge in imports, which contrasted with the first-quarter slowdown in exports, was helped by U.S. steel producers' decision in March to start stockpiling expensive foreign steel as a precaution against a possible July strike. A strike now seems less likely, and that should ease the upward pressure on imports.

U.S. exports fell in the first quarter at a 2.8 percent annual rate, while imports grew at a 12 percent rate. Analysts expect weak overseas demand to hold export growth this year to less than half of last year's 6.5 percent increase.

If there was any silver lining in the cloud of economic gloom yesterday, it was that the economy remained so weak that a return of inflation, a recent concern of the Federal Reserve, seemed less likely.

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