THE VIRGINIAN-PILOT
Copyright (c) 1996, Landmark Communications, Inc.
DATE: Friday, August 2, 1996 TAG: 9608020464
SECTION: BUSINESS PAGE: D6 EDITION: FINAL
SOURCE: ASSOCIATED PRESS
DATELINE: WASHINGTON LENGTH: 48 lines
The nation's economy raced ahead at its fastest rate in two years as summer neared, but other reports suggest the pace is slowing and higher interest rates will not be needed to prevent inflation.
Wall Street rallied on the news, which reassured investors the Federal Reserve will not tighten monetary policy this month to keep the economy from overheating.
The gross domestic product, the broadest measure of the nation's economic health, shot up at an annual rate of 4.2 percent from April through June, the Commerce Department reported. It was the steepest since a 4.9 percent rate during the second quarter of 1994.
Other reports issued Thursday suggested the economy may have peaked in the second-quarter.
The National Association of Purchasing Management reported U.S. manufacturing growth slowed unexpectedly in July, and the overall economy moderated after expanding strongly in June.
The association said its index, based on a survey of purchasing executives at more than 300 industrial companies, fell to 50.2 percent in July from 54.3 percent in June. Economists had been expecting an increase to 55 percent.
At the same time, the Commerce Department said that while construction spending rose 1.2 percent in June, the advance was limited to nonresidential building. Outlays fell for residential and government projects 0.2 percent and 0.5 percent, respectively.
Jerry Jasinowski, an economist and president of the National Association of Manufacturers, likened the GDP report to ``a train heading downhill.''
``The 4.2 percent increase ... overstates the true speed of economic expansion,'' he said. ``The estimate is based primarily on April-May data, when demand was unusually strong. By comparison, preliminary data for June was much weaker, suggesting that second quarter GDP will be revised downward.''
Still, the initial GDP estimate far outpaced the moderate 2 percent rate in the January-March period and the anemic 0.3 percent performance in the final three months of 1995.
``It was a very impressive report,'' said economist Stephen S. Roach of Morgan Stanley & Co. in New York. ``It certainly showed a marked acceleration moving into midyear.
``The big question is whether the economy is growing too fast to keep a lid on inflation and whether it forces the hand of the Federal Reserve. That question is still open to debate,'' he said.
KEYWORDS: ECONOMY by CNB