US economy grows; experts give 2 cheers
Boston — The nation's total output of goods and services turned up slightly during the April-June quarter. But it may be early to sound three cheers for the recovery.
US Commerce Secretary Malcolm Baldrige said the preliminary figures for second quarter gross national product (GNP), showing a gain of 1.7 percent in real terms at an annual rate, ''suggest the economy is in a transition stage between recession and recovery.''
His chief economist, Robert Ortner, said: ''It is premature to announce the recession is over.'' However, he says he expects a ''bigger plus'' in the current quarter.
Dr. Geoffrey H. Moore, director of the Center for International Business Cycle Research at Rutgers University, said, ''It could be the beginning of a sustained rise - but it may not be.''
Referring to some signs in June that the economy was weakening, Citibank economist Peter Crawford commented: ''It is a bit of an uphill climb for the economy to show a gain in the third quarter.''
These cautious analyses arise from the breakdown of the GNP number. Output rose primarily because businessmen reduced their inventories at a slower rate than they did in the first quarter. In effect, this improvement added $8.5 billion to the GNP rate in the second quarter.
Real final sales of goods, removing the impact of inflation, were down in the second quarter by $2.4 billion, or 0.6 percent. Final sales include consumer spending, business investment, exports, and government spending. It provides a solid indication of the demand for goods in the economy. Within this category, personal consumption expenditures were up $7.2 billion. Government spending was down slightly, largely because the Commodity Credit Corporation was buying farm products at a slightly slower pace. Business spending on plant and equipment was also lower.
The GNP figures, released by the Department of Commerce, show some other significant trends:
* Inflation remains at a relatively low level. The implicit price deflator, showing the level of inflation for all the products and services added up to make up the GNP, rose from a 4.3 percent annual rate in the first quarter to a 5 .3 percent rate in the second quarter. Another measure, known as the fixed weighted price index (which assumes the composition of GNP remains unchanged) dropped from a 4.8 percent rate in the first quarter to a 4.6 percent rate in the second. So, basically, the progress in the battle against inflation remains solid.
* The recession proves to be slightly worse than earlier figures indicated. Wednesday's numbers, which will be revised later, show that GNP declined at a 5. 3 percent annual rate in real terms during October-December 1981 and at a 5.1 percent rate during January-March of this year. These declines had previously been reported at 4.5 and 3.7 percent.
The bouncing around of the economy at the bottom of a slump is not unusual, according to Dr. Moore, who is regarded as one of the nation's top experts on the business cycle. Moore is also on a committee established by the National Bureau of Economic Research in Cambridge, Mass., to determine the months when recoveries and recessions begin.
That group of five or six economists, he noted in a telephone interview, reviews some 15 or 20 statistical series in such areas as industrial production, employment, real sales, hours of work, as well as various calculations of GNP, before picking the month of an upturn. It usually waits until some months after a turn in the economy - until the data have been revised - before making its pronouncements.
''It is my expectation that this summer will be the turning point,'' he says.
A Department of Commerce economist noted that the choice of a month as a turning point is ''arbitrary.''
Whatever, from the standpoint of the Republican Party and the fall elections, the recovery is late. Businessmen and consumers will feel little improvement in unemployment, production, and profits by November.
The June figures were described as ''disquieting'' by Commerce Secretary Baldrige. They included declines in employment, industrial production, housing starts, and retail sales. Personal income was up, however.
Baldrige, in a statement, did predict a business recovery ''in the months ahead'' based on the July income tax cut boosting consumer spending, an expected improvement in the level of home building, a return to inventory building, an anticipated rise in business investment, and an increase in defense spending in the future.
''We have to give the President's economic recovery program time to work,'' he said.
One concern of some economists was that new money being added to the economy was not giving as much of a kick to nominal final sales (in current dollars) as usual. Citibank's Mr. Crawford said his analysis indicated that this problem - defined by economists as a decline in the velocity of money, or how often it changes hands - was not exceptional.
The consensus of economists still calls for a recovery about now.