It was a week to confound the economists. As a group, they had predicted a major slowing in the rate of economic expansion during this, the second quarter of 1984.
Instead, the Commerce Department's flash estimate of the gross national product (GNP) came in at a strong 5.7 percent.
That number is substantially lower than the 9.7 percent growth rate (revised upward) of the first quarter. But it is considerably higher than the long-term capacity of the US economy to grow. Moreover, first-quarter numbers had included major inventory accumulation; the pace of final sales, which reflects consumer demand, actually picked up in the second quarter.
Even the cynics have to be asking, ''Does Reaganomics really work?'' The jury is still out looking for the definitive answer to that one. Old-line economists contend that the economy's strong growth rate during the first 18 months of this expansion is nothing more than what's to be expected given the massive fiscal stimulus provided it by the 1981 tax cuts, phased in over three years.
But some of these same economists seem to have been wrong in thinking the economy had already begun to slow down because of competing demands for credit.
True believers in supply-side economics, a major manifestation of which was the tax cuts directed at middle- and upper-income families, see their theories beginning to be verified. Faster-than-expected economic growth is even raising federal income tax revenues. The Reagan incentives for new investment have also helped spawn new business and have aided in the country's restructuring away from smokestack industries to an even greater emphasis on high-tech and service industries.
Yet, in looking at any period of history, the observer must try to factor in all the relevant elements and decide which are the most decisive. The markets continue to worry about the size of the federal budget deficits and the overhang of third-world debt. Financing deficits approaching $200 billion a year and the need to maintain the solvency of the domestic banking system whatever happens to repayments on foreign loans have given investors the jitters.
They are one factor, besides the needs of the expanding economy itself, that have helped push interest rates higher this spring. Those higher rates do seem to be pulling back the throttle on the expansion.
During May housing starts fell by 10.5 percent, and this decline was undoubtedly connected to rising mortgage rates. Personal income, also announced last week, grew by 0.6 percent in May, while personal consumption expenditures rose by 1.1 percent. This indicated a robust consumer, but one who was digging into his savings rate to maintain the rate of increase in spending.
Inflation, at 2.8 percent this quarter, continues to run at a lower rate than most economists had expected. (The 0.2 percent increase in the consumer price index in May is at about the same annual rate as the GNP deflator.) While that rate is likely to pick up as this business cycle matures, this administration deserves the credit for braking the inflationary psychology that had gripped the US during the 1970s. In the long term, this may be one of the most important accomplishments of the Reagan years.
A word about flash GNP estimates: They're based on the first six weeks of a quarter and can err substantially. This may be the case for the second quarter of '84. The economy undoubtedly came out of winter with a roar. The May statistics have indicated some slowing during that month (industrial production, for example, was up only 0.4 percent). If that trend continues in June, the second quarter would likely be marked down from last week's estimate.