U.S. economy grew slower than expected 4th-quarter results revised down slightly

inflation rate eased up

'96 expansion pegged at 2.4%

February home sales off a bit after a torrid January

Economic reports

March 29, 1997|By BLOOMBERG NEWS

The economy unexpectedly grew at a slightly slower pace in the fourth quarter than previously estimated, and inflation, while subdued, was higher, according to government reports yesterday.

The figures showed:

The gross domestic product, the total output of goods and services, expanded at a 3.8 percent annual rate, down from the previous estimate of 3.9 percent. Analysts had expected a 4.0 percent gain.

The price deflator, a measure of price increases, grew at a 1.5 percent pace in the fourth quarter. Though up from than the previous estimate of a 1.4 percent increase, the deflator still registered its lowest reading in 30 years.

Sales of new family homes fell 0.7 percent in February.

For all of last year, the economy grew by 2.4 percent, after expanding by 2.0 percent in 1995. In the current quarter, which ends March 31, growth will probably run at a healthy clip, close to 3 percent, analysts said.

The latest GDP figure "was more than accounted for by a downward revision to consumer spending on services, primarily

to medical care services, reflecting new hospital data for November," said Steve Landefeld, director of the department's Bureau of Economic Analysis.

The Commerce Department issues three estimates of each quarter's GDP as more information becomes available to its economists. In its initial estimate Jan. 31, the government reported that the GDP grew at a 4.7 percent annual rate in the fourth quarter. In its first revision Feb. 28, GDP growth was pegged at 3.9 annually.

Growth in the fourth quarter was driven by rising exports and consumer spending. In the third quarter, the economy grew at a 2.1 percent pace after a 4.7 percent gain in the second quarter.

After-tax corporate profits -- reported for the first time yesterday -- rose 1.5 percent during the fourth quarter after falling 1.4 percent in the third quarter, the Commerce Department said.

In its separate report on housing, the Commerce Department said sales fell 0.7 percent in February, after hitting an 11-year high a month earlier. It was the first drop in four months. All regions of the country reported fewer home sales except the West, the Commerce Department said in yesterday's report. Economists expected a 4.3 percent drop for last month.

"This is going to be one of our best years in the business in this area in six years," said Pless Lunger, president of Remax Distinctive Real Estate Inc. in McLean, Va. "Incomes are up, and prices are down, and we've reached a buying point."

Nationwide, sales declined to a seasonally adjusted annual rate of 811,000 in February after advancing a revised 3.5 percent in January to 817,000 -- the highest level since April 1986. Initially, the government reported that sales of new homes had posted an 8.6 percent increase in January.

Moreover, the low level of inventories of homes for sale could help propel starts of new housing construction, said Robert Dederick, an economic consultant at the Northern Trust Co. in Chicago.

Relatively low mortgage rates have also been helping. After rising above 8 percent last year, the average rate on a 30-year fixed loan has settled down. It averaged 7.65 percent in February, down from 7.82 percent in January.

That could be changing, though. This past week, the rate on a 30-year fixed-rate mortgage averaged 7.97 percent, up from 7.94 percent a week earlier, according to the Federal Home Loan Mortgage Corp..

Fed policy-makers, seeking to head off the danger of higher inflation as the economy grows rapidly, this week raised the overnight bank rate a quarter point to 5.5 percent, the first rate boost in more than two years.

The Fed's track record, during Fed Chairman Alan Greenspan's tenure, suggests the rate boost is less likely to be a single warning shot than the first in a series of increases. When the Fed last raised rates in 1994 and early 1995 it did so seven times, doubling the overnight rate to 6 percent.

"It certainly would be unusual for the Fed to stop with one rate increase," said former Fed Vice Chairman Alan Blinder, now a professor at Princeton University.

Pub Date: 3/29/97

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