Bush Seeks Momentum in Election Climax

SUSPICION is growing inside and outside the United States government that the Bush administration manipulated the government-spending process to produce a brighter picture of the US economy during the third quarter of 1992.

Some analysts go further, charging that the numbers were tampered with.

Last quarter's 2.7 percent increase in the gross domestic product - the nation's output of goods and services - was announced by the Commerce Department on Oct. 27. The July-to-September GDP rate was the last important barometer of the country's economic health released before tomorrow's election.

From Republican Wall Street financiers to budget analysts in Congress, skeptics assert that the number was either puffed up with accelerated government spending or fabricated in a last-ditch effort to show voters that the economic recovery is gaining momentum.

"It's quite likely" that if "they were smart enough to do it," top White House policymakers fast-forwarded spending to put the best face on the economy, says a senior administration official. "Had they not done it, the numbers would have been a lot smaller."

Even at 2.7 percent, the GDP number "is no grounds for going out and doing handstands," he says. "What it does show is that we're in the status quo - the same slow growth we've had all year - and there is still a lot of weakness."

The GDP is derived from complex calculations that draw on a wide variety of indicators. However, statistics on defense spending and farm output are supplied by the Defense and Agriculture Departments; they are two sets of numbers that the Commerce Department's Bureau of Economic Analysis (BEA) must get from outside sources. Mistrust of the GDP number focuses on these two areas, as well as others.

"The main reason why people think the GDP was fixed is that we had other economic indicators, including employment and industrial production, which were so much weaker," says a leading Wall Street economist who closely monitors the defense industry. After the release of the GDP figures, which exceeded expectations, "we asked ourselves - where did we go wrong? We started looking at the pieces of the GDP number, and the defense spending was one area that looked so out of line. They fixed it to get the las t good bit of economic news out before the election. They could have fixed unemployment, but that would have been obvious. The GDP is easier to hide manipulations [in], because it's so complex."

The defense sector represented 14 percent of the GDP's growth. "The Defense Department is on a diet," says a senior Senate official who disputes the military portion of the GDP calculation. For the past five quarters, defense purchases have fallen between $2 billion and $5 billion during each three-month period. But defense purchases rose $4.4 billion during the third quarter of 1992, dramatically departing from the trend.

He says defense spending is the "easiest to manipulate, in terms of timing." In mid-September, the Treasury Department released the final $3 billion from a Gulf-war account. The money was to be used for equipment repair and an early-retirement program for the military. Another $1 billion was approved recently for environmental cleanup of bases that are closing. To register in the GDP calculation, the Senate source says, the government would have had to spend the entire amount during the final two weeks o f the quarter. "I'm skeptical that it could all be spent that fast," he adds.

The Wall Street economist adds that while "shipments in defense goods allegedly went up in September, orders dropped like a stone for the same category of goods." He calls the third-quarter $4.4 billion defense figure "very suspicious," even after taking September's accelerated spending into account and the uptick that may have occurred from the traditional lag in defense orders.

Michael Evans, a prominent Washington economist and a Republican, claims the GDP books "were cooked." He says he doubts that farm inventories could have risen from $1.7 billion to $5.1 billion, given the crop damage from two hurricanes and the sharp drop in farm income reported by the Commerce Department during the second quarter. He says he thinks the farm numbers are inflated by more than $5 billion for the third quarter, a significant amount when considering that the GDP grew by just over $31 billion,

according to the BEA.

Prior to last week's GDP release, many forecasters projected a 1.5 percent growth rate for the third quarter. Analysts were surprised by the higher growth rate, yet Wall Street failed to respond positively. Says a Washington-based international banker: "The markets thought the number was a phony in terms of economic performance."

The Wall Street economist agrees: "The market is a very Republican environment, but it didn't rally to this number because the number wasn't believable."

George Perry, a Brookings Institution economist and a widely consulted analyst on federal statistics, says, "We have to distinguish this from election-year pump-priming, when at least what you record is actually happening." But the latest GDP number, he adds, is "creating a statistic to show that the economy is getting well, when in fact there is no reality underneath."