THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Thursday, March 2, 1995 TAG: 9503020441
SECTION: BUSINESS PAGE: D6 EDITION: FINAL
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium: 62 lines
The economy expanded at a rapid annual rate of 4.6 percent in the last three months of 1994, rounding out the strongest year of growth in a decade.
The Commerce Department on Wednesday reported that the advance was slightly more robust in the fourth quarter than its month-old estimate of 4.5 percent.
While the overall revision was tiny, the factors that drove the surge were adjusted dramatically and suggest that it may take longer than previously anticipated to rein in the economy's galloping pace.
The Commerce Department said that business inventories accumulated at a much slower rate in the fourth quarter than in the previous three months. Analysts said ahead of the report that smaller stockpiles could help sustain growth early this year since it would be easier for consumers to deplete them and spur production to replenish supplies.
Gross domestic product, which measures the total output of goods and services produced in the United States, increased 4 percent for all of last year. The last time growth was more rapid was in 1984, when the economy surged 6.2 percent during the final year of President Reagan's first term in office.
The economy increased 3.1 percent in 1993.
Analysts predict a slowdown in 1995 as higher interest rates work their way through the economy.
``It's plain there are signs of slowing,'' said economist David Seiders of the National Association of Home Builders. But he said growth in the current quarter still appears too strong for the Federal Reserve. He predicted another increase in interest rates at the end of March.
``They want to complete the job. They think they're doing a pretty good job,'' he said.
Despite the potent fourth quarter expansion, which was in line with economists' expectations, inflation remained well under control.
One measure of inflation tied to GDP was actually revised downward to show a gain of only 1.3 percent, instead of a previous 1.6 percent estimate for the October-December quarter. The index rose 1.9 percent in the third quarter.
The Federal Reserve, worried that an overheated economy will generate inflation, would like to see the economy growing about 2.5 percent.
Federal Reserve Chairman Alan Greenspan hinted in congressional testimony last week that the central bank might actually lower interest rates at some point if signs of a slower economy accumulate. The Fed has doubled a benchmark short-term interest rate, from 3 percent to 6 percent, in seven stages since February 1994.
While Wednesday's updated figures showed a smaller increase in fourth quarter inventories, the revision was more than offset by gains in net exports and sales, which surged 5.3 percent compared with 4.3 percent in the July-September quarter.
The Commerce Department said that the economy's overall annual rate of growth was $60.2 billion in the fourth quarter, compared with $52.9 billion - or 4.0 percent - in the third quarter. The growth rate was 4.1 percent in the second quarter and 3.3 percent in the first three months of 1994.
Consumer spending accounted for most of the gain, led by purchases of durable goods such as cars and computers. by CNB