Economy continues to show vigor

September 30, 1994|By New York Times News Service

WASHINGTON -- Fresh signs of persistent economic vigor emerged yesterday as the government published upbeat reports housing and employment, while raising for a second time its estimate of total output during the spring.

Another official report showed stepped-up inflation for imported

goods, reflecting, in part, the decline of the dollar.

Taken together, the various figures fanned fears that overly rapid growth could revive inflation and could lead the Federal Reserve to raise short-term interest rates again, perhaps after next week's monthly job report for September, to slow the economy.

"It looks like the economy's snapping back," said Joshua N. Feinman, an economist at Bankers Trust. He added that the Fed's inaction on rates when it met to consider raising them two days ago could prove short-lived.

Although none of yesterday's reports was particularly compelling its own, the combined force -- all in the same direction -- was enough to push interest rates higher and thereby depress the stock market.

"The system, I think, is generating economic growth that is still well above the 2 1/2 percent that is supposed to be the trend" over the long term, said Richard Aspinwall, chief economist at Chase Manhattan.

First-time claims for unemployment benefits, which analysts had expected to rise a bit, fell 11,000 last week, to 310,000, the lowest level of the year, the Labor Department reported.

More importantly, this fit a pattern of unmistakable improvement in recent months; the four-week claims average eased to 322,000 for the period that ended Saturday.

The buoyant labor market, analysts said, has helped blunt the impact that rising interest rates have had on housing. Conventional mortgages command about 2 percentage points more than they did at their lows last autumn.

Yesterday, the Departments of Commerce and Housing and Urban Development reported that sales of new single-family homes climbed 9.7 percent in August, paced by a huge, although statistically suspect, jump in the Northeast.

This advance, the strongest since September 1993, was also better than expected and included gains in all four major regions but the South. The increase in the Northeast was an eye-popping 82.1 percent, but this was from a much lower level than other regions, and analysts said it was undoubtedly a fluke.

The report on gross domestic product showed output of goods and services expanded at an annual rate of 4.1 percent in the second quarter. A month ago the pace was thought to have been 3.8 percent; the initial estimate, made in late July, was 3.7 percent.

The biggest factor in the latest update was higher business inventories, much of it farmers' holdings of cattle.

The fixed-weight price index for gross domestic purchases was revised back to the 3.2 percent inflation rate reported in July. Last month it had ticked up to 3.3 percent.

But evidence mounted yesterday that inflation has picked up in recent months. The Labor Department found that the price of imported goods other than oil surged six-tenths of 1 percent for the second straight month, double the average advance during the period of March through June.

This partly reflected the dollar's decline in world markets, which means that more U.S. currency is needed to buy a quantity of foreign goods or services than previously.

The American Business Conference, a group of chief executives at middle-sized companies, predicted yesterday that the final three months of the year would be marked by "continued growth, although at a slower pace and accompanied by early warning signs of inflation."

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