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

DATE: SATURDAY, July 30, 1994                   TAG: 9408010028
SECTION: BUSINESS                    PAGE: A-6   EDITION: METRO 
SOURCE: Associated Press
DATELINE: WASHINGTON                                  LENGTH: Medium

EXPANSION MAKES INVESTORS HAPPY

A big build-up in business inventories contributed to healthy economic growth this spring, eliciting cheers from the Clinton administration and investors.

The gross domestic product, the total of all goods and services produced in the United States, grew at a 3.7 percent annual rate in the second quarter this year, the Commerce Department said Friday.

The news prompted a strong rally on the stock and bond markets, and some economists said it gives the Federal Reserve little reason to raise short-term interest rates again any time soon.

``It's just what the doctor ordered,'' said Allen Sinai of Lehman Brothers Inc. The underlying trend is for an economy growing at a rate of about 2.5 percent, he said, and if that holds, ``This expansion will go on and on and on.''

But some analysts cautioned that, because inventory accumulation is outstripping consumer demand, that could mean a slowdown through the rest of 1994.

For now, the news was welcomed in nearly all quarters.

``The U.S. economy continues to turn in a fine performance. So far, everything we've seen in 1994 confirms our forecast of a sustainable, investment-led expansion with low inflation,'' said Laura Tyson, who heads President Clinton's Council of Economic Advisers.

Consumer spending, which accounts for two-thirds of the nation's economic activity, advanced at a 1.2 percent rate in the spring - the lowest since it fell 0.5 percent in the final three months of 1991. Spending surged 4.7 percent in the first three months this year.

Business inventories shot up $27.9 billion in the second quarter, most at the wholesale and retail levels rather than at factories. It was the most rapid build-up in nearly three years.

Purchases of interest-sensitive, big-ticket items such as cars and computers, rose $1.1 billion, compared with a $10.9 billion increase the previous quarter.

Despite rising mortgage rates, housing construction spending rose 7 percent in the second quarter, following a 10 percent advance.

Spending on capital goods increased at a 7.7 percent rate in the second quarter, following an 18.6 percent jump.

by CNB