Commerce Department officials disclosed yesterday that the economy is declining at a 4.5 percent annual rate, a drop substantially greater than the Reagan administration had expected as recently as last month.
The continued economic slump indicated by the so-called flash estimate of the January-March gross national product, however, does not rule out the possibility that a recovery could begin sometime in the April-June quarter, said Robert G. Dederick, assistant secretary of commerce for economic affairs. The major source of weakness is a "significant liquidation of business inventories" which is "laying the groundwork for renewed economic growth during the quarters ahead."
Murray L. Weidenbaum, the administration's chief economist, told CBS interviewers that he still thinks Americans will see signs of economic recovery by May that will bloom into full recovery during the second half of the year, helped by the 10 percent tax reduction set for July 1. "I view the impending tax cut....as a major shot in the arm for the economy," he said.
Meanwhile, the National Association of Manufacturers, which had quickly and affirmatively responded Thursday to a personal appeal from President Reagan for support of his economic recovery program, issued a more detailed statement yesterday indicating some disagreement after all.
The NAM said the federal budget deficits projected for 1983 and 1984 "are not consistent with increased business investment and a sustained economic recovery," and it called for further cuts in spending in all areas, with defense cuts not ruled out as Reagan insists.
Separately, the Commerce Department reported that revised estimates for the fourth quarter of last year show a similar 4.5 percent rate of decline in GNP, after adjustment for inflation. Originally, GNP was estimated to have declined at a 5.2 percent rate; this was revised last month to 4.7 percent.
But if the drop in real output was less than first thought, inflation was worse. The GNP implicit price deflator, the broadest measure of price change for the economy, increased 9.5 percent in the fourth quarter, according to the latest revision. That rise was first pegged at 8.4 percent and later moved up to 9.3 percent. A number of private forecasters expect the deflator to go up at about a 6 percent annual rate in the current quarter.
As part of the same report, Commerce said that corporate profits from current production fell $16.2 billion in the fourth quarter to a seasonally adjusted annual rate of $179.5 billion, the lowest level since the third quarter of 1980. For all of 1981, however, such profits totaled $192.1 billion, up nearly $10 billion from the year before.
After-tax profits dropped $11.1 billion to an annual rate of $145.2 billion, the lowest in more than three years. Since the profits figures are not adjusted for inflation, the numbers are in real terms much lower than they were three years ago.
The Commerce Department also reported that new orders for durable goods rose 1.5 percent in February, only the second increase since the recession began last July. The increase of $1.2 billion was heavily influenced by orders for defense equipment, which jumped 16.7 percent to $8.5 billion.
Excluding defense, new orders for durable goods--which include such items as cars, appliances and industrial machinery--fell 0.1 percent. Nevertheless, orders for automobiles and parts rose substantially. The largest decrease in new orders was in the primary metals industry, including steel, where orders have been falling since last July; February's were the lowest since June, 1977.
Utilization of manufacturing capacity fell 4 points, to 72 percent, between September and December of last year. This was the lowest ever recorded by the Commerce Department's quarterly survey, which was begun in 1965. The previous low of 75 percent occurred in 1975.