Economic Growth In Last Half of Year Spurs Hope for 1994

THE United States economy is finally starting to show some signs of life.

Yesterday the Commerce Department reported the nation's third-quarter gross domestic product (GDP) grew at a moderate 2.8 percent annual rate, despite the fact the country was beset by floods in the Midwest and drought in the Southeast. At the same time as growth is picking up, inflation remains low.

Consumer buying, particularly of cars and trucks, was a major reason for the economic lift. ``The bulk of the growth came from the consumer,'' says Robert Brusca, chief economist with The Nikko Securities Co. International Inc.

The third-quarter performance mirrors last year when the economy grew at a much faster clip in the second half, only to sputter out earlier this year. In the first quarter of 1993, the GDP grew at a 0.8 percent pace and then expanded to a 1.9 percent rate in the second quarter.

``Growth is picking up in the second half of the year and, if the excesses of late 1992 can be avoided, the business environment in 1994 will be the best since 1988,'' says Gail Fosler, chief economist at The Conference Board, a business group.

The improvement in the third quarter is already prompting some concerns that the economy will slip into overdrive in the fourth quarter. Citibank's economics department warns: ``We expect the report [third quarter] will reveal a ripening of conditions - rising demand, lagging output, depleted inventories - that probably will produce an explosion of growth in the quarter now getting underway.'' Citibank estimates that fourth-quarter growth will soar to 4.5 percent.

The bank's economists say that the economy will soon get a push from increased output from Detroit's automakers. Auto inventories are so lean that some manufacturers are missing sales. According to the bank, fourth-quarter output is scheduled to rise by 17 percent for cars and 16 percent for trucks. The bank's economists estimate that this will add 2 full percentage points to the growth rate next quarter.

Such an increase would catch most other economists by surprise. The economists who take part in Eggert's Blue Chip Consensus are forecasting 3 percent growth for the last quarter. Robert Eggert says he would be surprised if the economy grows at much more than a 3 percent rate. ``I haven't seen that kind of exuberance in the economy,'' says Mr. Eggert, who is based in Sedona, Ariz.

Economists have detected a real resurgence in interest-sensitive areas, however, particularly in consumer spending, residential construction, and capital goods.

For example, the Association of Home Appliance Manufacturers reports that total September shipments set a new record for the month, surpassing shipments in 1987. Consumers were big buyers of washers, dryers, refrigerator/freezers, and kitchen sink disposals.

Mr. Steinberg says that consumers are getting the cash from mortgage refinancing and commission income, such as from the sales of cars, stocks, or real estate. Neither number gets picked up quickly in official statistics.

The question of where consumers are getting their cash is important. When the government reports personal income figures today, expectations are that income will only rise by 0.2 percent in September.

This low income growth is matched by a high level of personal debt. According to the Federal Reserve, household debt is up 58 percent from 1982 to 1992. ``The consumer debt figures are still very heavy,'' Eggert says.

If the economy begins sprinting in the fourth quarter, the stock and bond markets may begin to anticipate some tightening by the Federal Reserve Board.