THE latest federal report on US economic growth - showing the economy growing far more vigorously than was forecast - reminds us of what happens when visitors unexpectedly show up for dinner: The living room may be picked up, but the well-barricaded closet doors may suggest the house is not as tidy as the decorum indicates. The gross national product for the fourth quarter of last year (October through December) grew at an impressive 4.2 percent annual rate. Some slump! That occurred despite the stock market crash of Oct. 19, as well as a sharp slowdown in consumer spending.
The upbeat GNP report, however, like some household closets we know, hides serious problems: Most of the GNP growth came from a sharp increase in inventories. That means that businesses will have to work off those goods - yet do so against a backdrop of a sharp reduction in consumer spending. Will manufacturing firms, in reducing production, start laying off workers, or, at the least, flash a red light on new hirings?
We hope not. So far, most companies have not found it necessary to do so. On the contrary, job growth has been impressive. The civilian unemployment rate for December fell to 5.8 percent, down from 5.9 percent in November. That's the lowest jobless rate since July of 1979. Job gains were registered across the board, for minorities as well as white males.
Still, construction is momentarily off; home sales in many parts of the United States are in their midwinter dormancy. If there is anything really going for the economy at the moment it would have to be in exports. Overseas sales, resulting from the falling dollar, have been booming. But even in the export area there are problems. Japan's economy continues to be strong, but that country, because of trade inhibitions, is finding it difficult to absorb additional US products. Europe's economy is soft. Moreover, Europe's export-oriented industries can be expected to start slashing prices, to compete with US products in the third world.
The implications for federal policy are evident: On the monetary side, the Federal Reserve Board must continue to loosen up on money growth, to get interest rates down. That would help spur consumer spending.
On the fiscal side, Washington must be firm in carrying out last year's Gramm-Rudman-Hollings cuts. Most of all, Washington must avoid doing anything that would spook the economy. The biggest scare factor would be the threat of a protectionist trade bill. The US economy is now relying on exports to carry the nation through the low overall growth expected during the first half of this year. No actions should be taken that would hurt the export trade.