The nation's economy slowed more sharply than expected last quarter, the government reported yesterday. But the slowdown came partly as a result of bad weather last winter and did not answer the key question of whether the economy's overheating has been checked.
Federal Reserve Board Chairman G. William Miller warned that despite the subdued growth rate, which reached an annual rate of only 0.7 percent, compared to a 6.9 percent pace the previous quarter, "it would be premature to assume that . . . we are out of the woods."
Miller said if growth in the current quarter rebounds to more than a 2.5 percent rate, the Fed may "need to consider some further restrictive monetary action." Commerce Department officials said the second quarter's growth easily could exceed that pace.
Miller also hinted broadly that the Federal Open Market Committee, the Fed's policy-setting arm, voted against any immediate increase in interest rates at its meeting last Tuesday, despite pressure from President Carter's top economic advisers for monetary tightening.
Yesterday would have been the first day any such increase would have shown up in the major money markets. Wall Street analysts said they saw no evidence by late afternoon that the Fed was pushing interest rates up-allaying any such fears, at least for the time being.
The new set of figures did little to resolve the current policy debate within the government, in which Carter's top economic advisers have been arguing that the economy was overheating, while Miller has been contending it is not.
Commerece Secretary Juanita M. Kreps told a briefing: "It is clear now that the signs are mixed."
The economy's growth rate was unusually volatile last year as well. Real gross national product dipped 0.1 percent in the first quarter, depressed by bad weather and the coal strike, and then rebounded to an 8.7 percent pace in the second quarter. The rates for the next two quarters were 2.6 and 6.9 percent.
William Cox, the department's deputy chief economist, predicted a similar "bounceback" in the second quarter of this year that he said could result in a growth rate of about 3 percent for that quarter-just above the 2.5 percent pace that Miller said would be a cause for concern.
Yesterday's report contained these highlights:
Inflation, as measured by the comprehensive GNP price index, rose at a last annual rate of 8.7 percent, up from an 8.2 percent pace in the previous quarter but still not as virulent as some had expected. Kreps predicted a significant easing later this year.
Business inventories rose $4.6 billion to a new annual rate of $18.1 billion-not quite as sharply as analysts had feared. However, economists said concern over the possibility of excessive stock-building was not over. Analysts say the April figures should provide more clues.
Real final sales, the broadest measure of buying throughout the economy, declined at a 0.3 percent annual rate after soaring at a 7.2 percent pace in the previous quarter-a potential cause of concern if the downtrend continues in coming quarters.
Consumer spending rose modestly, at a 1.7 percent annual rate, compared with a 7.6 percent pace in the previous quarter, leaving the outlook for this key sector more clouded than it seemed previously. Economists are divided over whether consumer spending will rebound.
Business investment rose at a moderate 2.6 percent rate, down sharply from the 9.5 percent pace of late last year. However, analysts said the figure was distorted by the impact of the winter snowstorms. Other recent indicators have shown business investment is beginning to surge.
There also were sharp declines in a number of key areas: Housing construction, for example, fell at a 13.8 percent annual rate, while government purchases dipped at a 3.4 percent rate, the result of cutbacks by state and local governments. Housing starts rebounded in March.
The figures did not necessarily quell the concerns expressed last week by top Carter administration policymakers, who still feel the economy may be experiencing an excessive industrial push that is contributing to the speedup in inflation.
Those apprehensions were based largely on late February and early March figures on employment in the manufacturing sector, new orders for durable goods, inventory-buildings by business and investment in new plant and equipment. The outcome may not be clear until May.
Miller's warning that the Fred may have to consider a further monetary tightening if the second quarter's growth rate tops 2.5 percent was highly unusual for any Fed chairman. Traditionally, the central bank has avoided setting any benchmarks of that sort.
Miller said: "There may be a bounceback in the second quarter. If it turns out to be less than 2.5 percent then I think we're in good shape. But if it's more than 2.5 percent then I think we need to seriously consider some further restrictive monetary action." CAPTION: Picture, JUANITA M. KREPS . . . "It is clear. . . the signs are mixed"