Economy slips -- inflation, too

The economy abruptly shifted into reverse during April, May, and June, the gross national product declining 1.9 percent on an annual basis -- the first drop since last year's recession, the government reported.

The surprising drop was watched by some bright news -- the smallest inflation surge in three years, the Commerce Department said. The inflation figure was a strong signal that the Federal Reserve's policy of attacking inflation by holding down the money supply is working. But that policy has also sparked strong protests from Western allies that resulting high US interest rates have hurt their economies.

As measured within the gross national product, prices during the second quarter rose at an annual rate of only 6 percent. In the second quarter of 1978 , prices went up 5.8 percent.

The GNP, after seasonal adjustment, was $2.88 trillion, showing the first decline since last yearhs recession-struck second quarter, when GNP plummeted 9. 9 percent. During January through March, the economy amazed analysts by expanding at a rate of 8.6 percent.

The decline in GNP was widespread throughout the economy, led by an $18.5 billion drop in final sales and a badly slumping ho using industry.

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