Profits in last quarter record first drop in year Even so, 3.8% growth in 1997 was strongest in 9 years, U.S. says

March 27, 1998|By BLOOMBERG NEWS

WASHINGTON -- The U.S. economy grew at a slower pace than previously estimated in last year's fourth quarter, and the Asian financial crisis contributed to the first drop in corporate profits in more than a year.

The gross domestic product, the total output of goods and services, rose at a 3.7 percent annual rate, the Commerce Department said, down from an earlier 3.9 percent estimate because consumer spending wasn't as robust as first calculated.

After-tax corporate profits in last year's fourth quarter, reported yesterday for the first time, fell 2.3 percent after rising 4.2 percent during the third quarter. It was the first decline since the third quarter of 1996, but analysts say the economy is on track for an eighth straight year of expansion.

Asia will "take little bit of the froth out the economy, but will still leave it growing at a pretty solid pace," said Mark Vitner, an economist at First Union Corp. in Charlotte, N.C.

In 1997, the economy expanded by 3.8 percent, topping 1996's 2.8 percent growth and the strongest showing in nine years. Not adjusted for inflation, the U.S. economy's output was $8.1 trillion in 1997, representing more than a quarter of total global output of goods and services.

Consumer spending and housing "are going gangbusters," said Lyle Gramley, an economic consultant at the Mortgage Bankers Association of America and a former Federal Reserve governor. And in the first quarter of this year, which ends Tuesday, the economy probably grew at a 3.5 percent annual rate, according to Russ Sheldon, an economist at MCM MoneyWatch in New York.

Separately, the Labor Department said the number of Americans filing for state unemployment benefits rose 4,000 to a seasonally adjusted 313,000 in the week that ended March 21. The four-week moving average for jobless claims, which smoothes out the weekly volatility, fell to 306,500 from a revised 308,250, suggesting solid job growth.

And the Conference Board said its index of newspaper help-wanted ads rose in February to the highest level since November.

The benchmark 30-year treasury bond rose 3 basis points to 5.95 percent and U.S. stocks were mixed. The Dow Jones industrial average fell 25.91 points to close at 8,846.89, and the Standard & Poor's 500 stock index fell 1.13 points to close at 1,100.80.

The decline in corporate profits in the fourth quarter was led by a drop in net earnings from international affiliates of U.S. companies, resulting from the economic chaos in Asia and the strength of the dollar against Pacific rim currencies, the government said.

Rising imports from Asia and declining exports to the region became more evident in February at the two largest Pacific Coast ports during February.

An even larger wave of imports "is about to come," said Al Fierstine, director of business development at the Port of Los Angeles. "Christmas goods are already coming in, which is unprecedented."

Los Angeles, the nation's second busiest port, reported imports grew 8.8 percent during February, while the adjacent port of Long Beach, traditionally the nation's busiest facility, said imports rose 4.2 percent. On the other hand, Long Beach reported an 11.7 percent drop in exports in February, while Los Angeles said they fell 6.7 percent.

Profit concerns are carrying over to the new year. First-quarter profits among Standard & Poor's 500 Index companies are expected to rise just 1 percent, according to First Call Corp, far less than the 15.1 percent increase reported in the first quarter of 1997.

The final fourth-quarter GDP figure is lower than the government's previous growth rate estimates from February and January of 3.9 percent and 4.3 percent. The government issues three estimates of each quarter's GDP as more information becomes available. Analysts had expected no change in the latest report.

A lower estimate for fourth-quarter consumer spending on services more than offset a higher estimate for spending on aircraft, Commerce Department figures showed, accounting for the latest revision. Real final sales, which exclude the effects of inventory changes, rose 2.3 percent in the fourth quarter, previously reported as a 2.5 percent increase.

Inventories rose in the fourth quarter at a 1.4 percent annual rate. That inventory buildup accounted for much of the increase in growth during the final three months of the year.

Inflation barely registered a blip on the government's radar screen. The GDP price deflator, a measure of prices followed by many investors, grew at an unrevised 1.4 percent annual pace in the fourth quarter. The deflator also rose 1.4 percent in the third quarter, the smallest rise since the second quarter of 1964.

Pub Date: 3/27/98

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