The government yesterday sharply revised downward its estimate of economic growth for the fourth quarter of 1985 to 1.2 percent, as a surprisingly large influx of foreign goods flooded the already import-battered economy.
The revision left growth in gross national product -- the nation's output of goods and services -- at 2.3 percent for all of last year, the worst economic performance since the end of the recession in 1982.
The growth rate for the year fell far short of the administration's forecast of 3 percent growth for 1985 and it was also well below the 6.5 percent growth rate for 1984. The fourth-quarter figure followed a 3 percent growth rate in the third quarter and fell short of the previous estimates of what it would be.
Commerce previously had estimated that growth for the fourth quarter was running at an annual rate of 3.2 percent. Last month that figure was revised down to 2.4 percent.
Despite the surprisingly sluggish ending for 1985, economists said yesterday that they still expect the economy to rebound this year, particularly because of the recent sharp drop in oil prices. Economists also said that they expect the trade picture to improve this year and for businesses to restock supplies that were depleted during 1985.
"The report underscores a bad year for the U.S. economy in 1985," said Allen Sinai, chief economist for Shearson Lehman Brothers. "The U.S. economy was quite weak, mainly from the weakness in trade and a depressed industrial sector. For sure, 1986 will be better than 1985."
"I'm optimistic about the outlook," said Robert F. Wescott, senior economist for Wharton Econometrics. Wescott said that the dollar has steadily declined since it reached its peak a year ago and that by the summer, the trade picture should improve.
The continuing increase of imports over U.S. exports has subtracted nearly a percentage point of real GNP growth annually, but starting this summer "exports are going to be an engine of growth," Wescott said.
Wescott also said that business inventories had run down last year, which means that production will increase this year to rebuild stocks.
Treasury Secretary James A. Baker III, without specifically mentioning the GNP figures released yesterday, told Congress yesterday that other economic indicators "added up to a year of solid economic performance in 1985" and that "the stage has been set for sustained expansion in output, jobs and income."
GNP growth has become particularly important this year because of the Gramm-Rudman-Hollings budget-balancing act, which sets declining deficit levels until a balanced budget is reached in 1991. If economic growth is slower than assumed by the government, then the deficit would grow, requiring more budget cuts to achieve the deficit targets.
The Reagan administration has forecast growth of 4 percent this year and many private economists have raised their forecasts close to that mark because the decline in oil prices should provide more income for consumers and businesses, foster lower inflation and lead to higher economic growth.
The major reason for the revision in the figure for the fourth quarter of 1985 was that the trade picture was worse than originally expected, Commerce said. The trade deficit ran at a $134 billion annual rate in the fourth quarter, $6.4 billion higher than the deficit figure used earlier.
A $6.7 billion drop in inventory investment by businesses also pulled down the fourth-quarter growth figure. The government originally estimated that inventories had grown during that quarter.
David Jones, economist for Aubrey G. Lanston, said that first-quarter growth should be between 3.5 and 4 percent because of expected increases in business inventories and an improved trade performance. It is still too early for the recent decline in oil prices to affect growth, Jones said. The results of the oil price decline will show up after mid-year, he said.
Shearson's Sinai also said he anticipates growth of between 4 and 4.5 percent in the first quarter, in part because of the decline of the dollar and lower interest rates.
Inflation, as measured by the GNP index, rose 3.9 percent in the last three months of 1985, up from the 2.7 percent rate in the third quarter. It was the largest quarterly increase since inflation rose 5.1 percent in the first quarter of 1984.
Inflation increased 3.5 percent for all of 1985, down from the 4.2 percent rate in the previous year.
Final sales adjusted for inflation rose 1.8 percent in the fourth quarter, following a large 5 percent increase in the third, because of a sharp decline in automobile purchases as discount automobile financing programs ended, Commerce said. Federal government defense purchases also changed little following a large increase from July to September.