Showing stubborn strength, the economy continued to expand in the fourth quarter of 1979 with the output of goods and services rising at a 1.4 percent annual rate after adjustment for inflation, the Commerce Department reported yesterday.
In what originally had been billed by most economists as a recession year, the gross national product eked out a tiny 0.8 percent gain from the fourth quarter of 1978 to the final three months of 1979.
For the year as a whole, GNP reached 2.3685 trillion, 2.3 percent above the level for 1978, the department said.
Unexpectedly strong consumer spending has so far kept the economy from an obvious slide into a recession, which most analysts believe is still on the way. Evidence is in the personal savings rate, which dipped to 3.3 percent of disposable income in the fourth quarter, the lowest rate since 1950. p
Meanwhile, the First National Bank of Chicago, one of a handful of major banks whose prime lending rates have been at 15 percent, raised its prime rate to 15 1/4 percent, the level most big banks have been charging.
White House press secretary Jody Powell said the economy "has shown itself to be stronger than most people expected." Powell said that with the exception of automobiles, the United States is entering 1980 with a "relatively good balance between (inventory) stocks and sales which should be helpful in keeping the downturn from being sharp and of great duration."
The drop in the savings rate "is not altogether encouraging," Powell said, because it reflects inflationary expectations. The inflation psychology that has led to higher consumer spending will breed still more inflation "unless we're able to turn it around," he added.
Virtually all of the oomph last quarter came in personal consumption spending, which rose about 4 percent annually after adjustment for inflation. Spending in most other categories either dropped or rose only slightly.
The GNP deflator, the broadcast measure of inflation in the economy, increased 8.8 percent for the year as a whole. In the fourth quarter, it was rising at an 8.7 percent rate.
Another GNP price measure -- an index calculated as if individuals, business and the government bought the same mix of goods and services quarter after quarter -- rose 9.4 percent for the entire year and at a 9.9 percent rate in the final quarter. The more widely known consumer price index, on the other hand, rose at a 13.1 percent annual rate in the first 11 months of the year.
Courtenay Slater, the Commerce Department's chief economist, predicted "there will be only modest improvement in inflation" in 1980.
Consumer spending was largely responsible for a 3.1 percent real GNP growth rate in the third quarter and the 1.4 percent rate in the fourth, Slater said. "It was the consumer that kept us out of recession," she declared.
"It was not that consumer spending was booming, which it was not. But compared with what we might have expected, given the squeeze on real incomes because of higher oil prices and other factors, consumer spending was stronger than what we suspected."
Now, however, Slater said, "I think we have to view some brief and moderate recession in the first half of this year as fairly inevitable."
The official administration forecast for 1980, which will be released along with the 1981 budget Jan. 28, is expected to show such a recession with unemployment rising to about 7.5 percent in the final quarter of this year.
Over the year, government purchases of goods and services at the federal as well as the state and local level rose hardly at all after adjustment for inflation.Federal purchases rose slightly while state and local government buying declined by a similar amount.
Because of the impact of inflation the higher taxes, per capita disposable personal income dropped for the third consecutive quarter, the department said. Between the first quarter of 1979 and the last, it fell by nearly one percent.