Trade Woes Limit GNP to .6% Gain : Commerce Dept. Says Growth Is Worst Since ’82
WASHINGTON — The economy, as measured in the nation’s output of goods and services, grew at a feeble 0.6% pace from April through June, reflecting the country’s persistent trade troubles, the Commerce Department reported Tuesday.
It was the weakest quarterly gain in the gross national product since the end of the 1982 recession, the department said.
Government and private economists blamed the nation’s trade deficit for slowing growth from the first-quarter gain of 3.8%.
“We’re buying much, much more from the rest of the world than we’re selling,†said Sandra Shaber, vice president of Chase Econometrics, a private forecasting firm in Bala-Cynwyd, Pa.
The flood of imports has undercut domestic manufacturing in the industrial heartland, while the worldwide surplus of agricultural goods has hurt American farm product sales abroad.
‘Rather Bleak’
“Prosperity has been limited to the East Coast and the West Coast,†Shaber said. “If you fly between Los Angeles and Washington, you’re spared the grim realities of the rest of the nation. Things are rather bleak out there.â€
But White House press spokesman Larry Speakes, in California with the vacationing President Reagan, said the Administration--which began the year predicting that the economy would grow at a healthy 4% annual rate--predicted an imminent upswing.
“With inflation remaining under control and key economic indicators strengthening, we are optimistic about the prospects for a strong showing the second half of 1986,†he said.
Budget Director James C. Miller III said he believes that the economy soon will begin to rebound as the drop in the value of the dollar boosts overseas sales of American products and reduces imports into this country.
More to Spend
He also said lower oil prices will stimulate the economy by giving consumers and businesses more to spend.
“We expect the (negative) trade balance to be significantly reduced,†he told reporters.
Miller said he expects the Federal Reserve Board to help the cause by again cutting the discount rate, the charge it levies on loans to major banks. With banks paying less for funds, they in turn would reduce the interest rates on loans for individuals and corporations, spurring spending and investment. “I think we’re on the threshold of a bit more stimulative monetary policy,†he said.
In Tuesday’s report, the Commerce Department said the value of the nation’s gross national product increased only $5.6 billion, contrasted with the $33.6-billion gain in the first quarter.
The bright spots were the inflation rate, which remained low, and consumer spending and housing construction, which gained strength.
The GNP price index--a measure of the inflation rate for the entire economy, including wholesale and retail prices--increased at an annual rate of only 1.9% during the period, the smallest quarterly increase since the spring of 1972.
The department attributed the low inflation rate to the slump in energy prices.
Consumer spending increased $37.7 billion in the second quarter, contrasted with a rise of $21 billion in the first quarter. Consumer spending grew at an annual rate of 6.5%, and spending on housing construction rose at a 13.5% annual rate, the latter attributable to reduced interest rates.
Thus far, consumer spending has been driving the economy, economic experts said. But, because consumers are amassing high levels of debt, some economists fear that they may cut back their spending, bringing an end to the recovery of the last 43 months.
“It’s very unlikely that consumer spending and housing can continue to carry the economy in the second half,†Shaber said.
Gloomier Figure
The new figure on GNP growth during the second quarter marked a gloomier revision from a month ago, when the government estimated that the economy was expanding at a 1.1% rate. The newest figure matched the 0.6% performance in the final quarter of 1982, when the nation was coming out of a recession.
Government officials and private economists have predicted throughout the year that the economy would perform strongly under the stimulus of lower oil prices and falling interest rates, but they have been consistently disappointed.
So far, the gap between imports and exports has outweighed those factors. The trade deficit increased to $24.6 billion in the second quarter, as exports decreased $5.3 billion and imports increased $19.3 billion. Exports of farm products dropped during the second quarter, while imports of oil products rose, increasing the deficit.
In a separate report, the department said after-tax profits of corporations rose 4.1% in the April-June quarter, reaching an annual rate of $140.8 billion and reversing a 3% drop during the first quarter.
The department said purchases of durable goods increased $13.4 billion, contrasted with a first-quarter decrease of $1.6 billion. Purchases of non-durable goods increased $17.5 billion, compared to a first-quarter increase of $13.4 billion. Purchases of services increased $6.9 billion, compared to an increase of $9.1 billion during the first quarter.
Times staff writer Robert A. Rosenblatt contributed to this story.
Inside the business of entertainment
The Wide Shot brings you news, analysis and insights on everything from streaming wars to production — and what it all means for the future.
You may occasionally receive promotional content from the Los Angeles Times.
