Economics dominated the domestic scene last week, just as surely as the Democratic National Convention did the previous week. The amazing second-quarter GNP figures were reported, as well as other data indicating the economy is in fine shape. The Continental Bank ''takeover'' by the Federal Deposit Insurance Corporation solved a present crisis (although raising a possibly dangerous precedent). And Federal Reserve Board chairman Paul Volcker's semiannual testimony on Capitol Hill helped place the current recovery in proper perspective.
Few weeks could give a president starting out on a reelection campaign better economic news. Second-quarter GNP came in at 7.5 percent, a hefty increase over the flash report a month ago, which had it at 5.7 percent. Moreover, final sales were even stronger than the overall number. What this means to us lay people is that growth was not artifically high from the accumulation of inventories. It was real growth, sparked by strong consumer buying and a very strong business investment sector. Business spending was increasing at 20 percent annually.
Longer term, an economy can grow only as fast as the increase in its labor force, as the total hours that labor force works, or both, plus whatever productivity gains are achieved by that force. In a recovery, an economy grows faster than normal, as unused capital and labor are put back to work. Over a longer period, however, the United States economy appears able to grow somewhere between 3 and 4 percent annually.
As any recovery ages, the growth rate declines to the average and eventually to somewhat less than even the average. That will happen this time, too, but the good news is how long the recovery is continuing at such high rates without reigniting inflation. Also announced last week was the consumer price index for June. For the second consecutive month it rose by only 0.2 percent, meaning that for the last two months inflation has been running at somewhat less than a 3 percent annual rate.
The Continental Bank takeover is not such good news. But it ends an incipient financial crisis that could have affected more than just the Continental. What this implies for the future is that if you're a depositor in a big enough bank, even if it's badly run, you have no need to fear for the safety of your money. What the FDIC has done for the eighth-largest bank in the nation it would have to do for any other major financial institution.
Just as the Chrysler bailout was probably the right thing to have done, the Continental solution can also be defended on pragmatic grounds. Shareholders do not necessarily get anything out of the solution. But it does put the federal government into the business of propping up failing major financial institutions , a form of largess it cannot extend very far.
As for Paul Volcker's testimony, the Fed chairman saw no current danger in the economic expansion. But he warned that ''the strongest kind of effort will be necessary to convert potential success into sustained growth and stability.'' Although President Reagan had said in his news conference the day before that continued growth would lower the federal deficit, Mr. Volcker does not expect the deficit to decline much from this year's projected $175 billion without more fiscal changes.
Volcker also addressed the connection the deficit has with the international economy: It contributes to higher interest rates; these, in turn, bring money into this country and give the US an overvalued dollar.
Some of these imbalances Volcker referred to are not readily visible to everyone. The 7.5 percent growth rate is. From now until November, one must remember that the use of statistics will tend to be selective. This column will try to look at all the relevant numbers and present them as a whole.