A government report on economic growth in the second quarter, coming after a string of discouraging economic news, has dampened expectations for a recovery and renewed fears that the nation could slip back into a ”double-dip” recession.
The U.S. Commerce Department reported Friday that the economy grew at a barely perceptible 0.4 percent annual rate in the second quarter, the first period of growth since the recession began but a much weaker showing than expected.
”Those who are looking for a stronger recovery are likely to be disappointed,” said Samuel Kahan, chief economist for Fuji Securities. ”That means the unemployment rate will hover around the present rate or drift down slowly.”
The 0.4 percent annualized increase in the gross national product, the country`s total output of goods and services, is well below the current population growth rate of 1 percent per annum. So the nation continues to fall behind in dollars-per-wallet.
However, the gain in GNP is better than declines of 2.8 percent in the first three months of the year and 1.6 percent in the final quarter of 1990. It also was enough for the White House to say the new numbers are a sign the recession is history.
”This further indicates that the recession appears to have ended in the spring and a recovery has begun,” said Michael Boskin, the president`s chief economic adviser. ”We expect the recovery to continue and gain momentum.”
Economic growth in the April-June quarter came primarily from a 3.6 percent increase in consumer spending. But the trade balance, which has given the economy a boost through the recession, soured as the downturn took its toll on U.S. trading partners. Businesses also cut their inventories aggressively for the third quarter in a row.
”I don`t like what this report says about the future,” said Robert A. Brusca, chief economist for Nikko Securities.
”The fundamentals that describe consumers` health don`t look good,”
Brusca said. ”Consumer savings were down, and savings is at a low point. So we can`t look for the consumer to keep doing this.”
Recent reports that retail sales and orders for durable goods, those expected to last three years or more, slipped in June are evidence the economy has started retrenching, Brusca said.
Brusca is among a number of private economists who forsee a ”double-dip” recession. In five of the last eight recessions, the economy has shown a quarter of growth that was nothing more than what economists call a
”dead-cat bounce.”
”Big business,” Brusca said, ”is all the more gloomy in this recession.”
For Compaq Computer Corp., the faltering European economies scuttled its results, giving the 9-year-old company its first quarter of falling sales.
”We don`t think there`s going to be any kind of recovery in the third quarter,” said Compaq President and Chief Executive Rod Canion. ”The major factor that`s offsetting anything for us is the softness of Europe, and Europe was expected to be growing. The U.S. is even softer.”
Even those who are looking for a sustained recovery see it as one of the most disappointing ever. The nation typically bounds out of a recession with growth rates of 6 percent or more, but few economists are predicting more than half that.
”Slow, steady, tortoise-like growth” is economist Kahan`s forecast.
Weakness in the banking system, an overhang of vacant real estate, lagging exports and tightening state and local government budgets will sap the strength of a recovery.
”What we`re hearing from many members around the country is there`s no strong sector of growth in the American economy,” said Jerry Jasinowski, president of the National Association of Manufacturers.
”You`ll see modest growth in the third quarter because of some inventory rebuilding, a little capital investment and some export growth, but those are the only places you`ll get much,” Jasinowski said.
The GNP report provided a further sign that inflation is ebbing. The fixed-weight price deflator, a broad measure of price changes in a basket of goods and services, rose at an annual rate of only 3 percent after a 5.2 percent increase last quarter.
The improving inflation outlook reduces the chance the inflation-wary Federal Reserve will strangle a recovery by tightening monetary policy, said Walter Fackler, professor of business economics at the University of Chicago`s Graduate School of Business.
Continued improvements in inflation also are likely to bring down long-term interest rates, which would help the economy by making it easier to buy homes and invest in plants and equipment.
The Commerce Department report showed annual growth of $4.3 billion in the economy, adjusted for inflation and seasonal changes. Consumer spending added $23.5 billion to GNP. A deterioration in trade subtracted $25.7 billion, with a flood of imports swamping a small advance in exports. Half the import gain came from foreign oil.
Business investment in new plant and equipment, a key job-producing activity, fell at a 2.3 percent rate in the quarter.
The struggling housing industry posted a 3.7 percent gain in the second quarter, the first improvement in more than a year. Other strength came from increased federal government spending and a slightly smaller reduction in business inventories than in the previous quarter.
The GNP report will be revised twice as more data come in.
