THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Saturday, April 1, 1995 TAG: 9504010222
SECTION: BUSINESS PAGE: D1 EDITION: FINAL
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: Medium: 58 lines
The economy grew more rapidly at the close of 1994 than it had in a year, reigniting inflation fears.
But analysts said there is little reason to fear either inflation or that the Federal Reserve will resume raising interest rates because most signs still point to slower consumer spending this year.
The Commerce Department said Friday that the gross domestic product surged at a 5.1 percent annual rate in the fourth quarter last year, the fastest growth since it advanced at a 6.3 percent clip in the final three months of 1993.
The economy grew 4.1 percent for all of 1994. That's the strongest performance since 1984, when it expanded 6.2 percent during the final year of President Ronald Reagan's first term.
The stock market lost ground Friday and later recovered after most analysts insisted that the growth figures are old news and that the economy is slowing under the Federal Reserve's spate of interest rate increases.
In a possible sign of slowing, the Commerce Department also reported Friday that orders to U.S. factories fell 0.2 percent in February, the first decline in four months. Demand for big-ticket durable goods was off 0.8 percent, also the first decrease since October.
The GDP figures were revised upward from the government's month-old estimate that showed a 4.6 percent annual rate gain for the fourth quarter of 1994. Increased business spending on aircraft and heavy-duty trucks, and higher net exports due to smaller imports were big contributors to the change.
Analysts said that the latest revisions do not mean consumer spending, the main engine of economic growth, will rise.
``The basic message is that the economy went out of 1994 with a whoosh,'' said economist Robert Dederick of the Northern Trust Co. in Chicago. ``That, of course, is behind us. The economy seems to have slid out of the fast lane as soon as the page was turned, with a rather dramatic downshifting.''
He pointed to recent evidence of slowing in the housing and car markets. The peso crisis in Mexico is also expected to be a drag on the U.S. economy, cutting into exports.
The revision in GDP, which measures the output of all goods and services produced in the United States, caught analysts by surprise. Most had predicted that the rate of growth would be unchanged from the earlier estimate. Despite the potent fourth-quarter expansion, inflation remained steady. One measure of inflation tied to GDP was revised upward slightly to show a gain of 2.6 percent, instead of a previous 2.5 percent estimate for the October-December quarter. The same index rose 3.5 percent in the third quarter.
KEYWORDS: ECONOMY by CNB