
                         Roanoke Times
                 Copyright (c) 1995, Landmark Communications, Inc.

DATE: FRIDAY, July 27, 1990                   TAG: 9007270673
SECTION: NATIONAL/INTERNATIONAL                    PAGE: A/1   EDITION: EVENING 
SOURCE: Associated Press
DATELINE: WASHINGTON                                LENGTH: Medium

ECONOMIC GROWTH SLOWS

The U.S. economy, continuing to skirt along the edges of a recession, posted weak growth at an annual rate of just 1.2 percent from April through June, the government reported today.

The Commerce Department said the gross national product, the country's total output of goods and services, was propped up entirely in the second quarter by a big buildup in business inventories.

Other major components of the economy, from consumer spending to business investment and housing construction, suffered declines during the quarter.

The 1.2 percent GNP increase in the second quarter followed a revised 1.7 percent increase in the first quarter and a barely discernible 0.3 percent advance in the OctoberDecember period last year.

This string of weak quarterly growth rates is raising concerns over whether the current economic expansion, which has lasted a peacetime record of almost eight years, is in danger of toppling into a recession.

Today's report offered little comfort on that score, given the fact that the only strength came in the restocking of store shelves and backlots.

In the face of falling consumer demand, those higher inventories could force production cutbacks and job layoffs in the second half of the year, one of the classic ways a recession begins.

In one encouraging sign, inflation slowed markedly in the second quarter, with a GNP price measure dropping to an annual rate of increase of 3.9 percent, down from a 6.6 percent rate in the first three months of the year. One-half of the improvement came from a slowing in food prices.

The Bush administration is counting on the Federal Reserve to come to the economy's rescue by switching its attention from fighting inflation to worrying more about keeping the recovery alive by lowering interest rates.

Commenting on today's report, Commerce Undersecretary Michael Darby said that the significant easing of inflationary pressures "bodes well for continued economic expansion." He said the administration was still looking for a significant upturn in activity in the second half of the year, led by a rebound in growth in both export sales and business investment.

However, private economists were far less optimistic about the future, contending that they saw little evidence of strength anywhere in the economy.

"What the GNP is telling us is that we have an economy that has run out of steam," said Robert Dederick, chief economist of the Northern Trust Co. in Chicago. "There is no dynanism left in the expansion. The consumer is tired, business is tired and government spending is being reduced as well."

In addition to reporting on weak economic growth in the just-completed second quarter, the government sharply revised down its estimates of past growth.

It reduced the growth estimate for every quarter in 1989 and trimmed growth for the entire year to an annual rate of 2.5 percent, down from an earlier forecast of 3 percent.

The revision meant that the U.S. economy in 1989 grew at its slowest pace since an actual decline of 2.5 percent in the recession year of 1985.

The government blamed the big downward revisions on mistakes that overestimated wages and salaries in 1989 by $57.9 billion.

by CNB