THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, January 28, 1995 TAG: 9501280216
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: THE NEW YORK TIMES
DATELINE: WASHINGTON LENGTH: Medium: 58 lines
The economy accelerated to a 4.5 percent growth rate in the final three months of 1994, the government reported Friday, but ended the strongest year in a decade with clear signs that the slowdown long sought by the Federal Reserve may be at hand.
In financial markets, bond prices surged, driving interest rates lower, as analysts concluded that a slowdown could mean the Federal Reserve was close to the end of a credit-tightening process it began a year ago to keep inflation in check and the business expansion from overheating. The broad stock market was steady, but blue-chip stocks fell.
The Wall Street response was prompted by the Commerce Department's latest quarterly report on the nation's output of goods and services, which showed that the strong growth at the end of 1994 failed to cause inflation to budge.
The report also disclosed that inventories of unsold goods climbed more than expected, suggesting that factory orders could taper off early this year as stores scaled back their demands for new supplies. That caused a scramble among private analysts to trim their forecasts of economic growth for the first half of 1995.
While most economists still expect the Fed to raise short-term interest rates at its policy meeting next week - probably by half a percentage point - it now appears much more likely that any increase would be either the central bank's final move for a while, or at least that any subsequent action would be minimal.
``The slowdown in this economy is here,'' predicted James E. Annable, chief economist at the First National Bank of Chicago. ``That big inventory number is the 400-pound gorilla that is jumping all over first-quarter growth.''
It was not clear exactly what caused the large buildup in unsold goods, but analysts tended to interpret it as a tailing-off of consumer buying at the end of the year rather than as an intentional restocking of store shelves.
Nothing in the report pointed to an impending recession. Still, the inventory buildup and other economic signals suggest that the overall 1994 growth rate of 4 percent could turn out to be the last big advance in the continuing expansion that began in spring 1991.
Higher interest rates finally seem to be taking their toll. Car sales, for instance, appear to be peaking as dealers reduce their orders to avoid the extra costs of financing, causing some automakers to idle factories producing models that were hot sellers only a few weeks ago. ILLUSTRATION: GROSS DOMESTIC PRODUCT (1984-94)
STAFF Chart
SOURCE: U.S. Dept. of Commerce, Associated Press
[For a copy of the chart, see microfilm for this date.]
KEYWORDS: ECONOMY by CNB