The nation's output of goods and services rose in the third quarter at a scant 0.8 percent annual rate after adjustment for inflation, the Commerce Department said yesterday, and a top Reagan administration official predicted that the current quarter will also show little or no economic growth.
Commerce Secretary Malcolm Baldrige said the small seasonally adjusted rise in the gross national product for the July-September quarter "is another indication that the economy is in an interim period between recession and recovery." This quarter will also be "flat" or show only another small increase in real output, he predicted.
President Reagan in recent statements has been far more upbeat, citing the stock market surge and increases in housing starts as indicating a recovery from the recession is about to begin. Treasury Secretary Donald T. Regan has said the economy will expand at a 3 percent to 4 percent annual rate this quarter.
The stock market continued to soar yesterday as a furious spurt of buying in the final half-hour of trading pushed the Dow Jones Industrial Average to 1,034, a 20-point rise over Tuesday's closing average and the highest level since Jan. 12, 1973. Details on Page C1.
Even with the third-quarter uptick, real GNP remained slightly lower than it was three years ago in the third quarter of 1979. In no other three-year period since World War II has the economy shown no growth.
The rise in real GNP was smaller than in the second quarter when it went up at a 2.1 percent rate. It had dropped at more than a 5 percent rate in both of the previous two quarters.
Inflation, as measured by the GNP deflator, moved up from 4.6 percent in the second quarter to 5.4 percent in the third primarily because of an increase in energy prices. The rate was still sharply lower than the 9-percent-plus inflation rates shown by the deflator in both 1980 and 1981.
One reason why economists did not hail the report as signaling an end to the recession is that final sales, which comprise all of GNP except the change in business inventories, continued to fall at a 2.1 percent rate in the third quarter. Final sales had declined at a 3.4 percent rate in the previous three months.
In other words, GNP rose in both the second and third quarters only because goods were piling up on company shelves and final sales fell faster than production was cut.
Echoing Baldrige's remarks, economist Donald Ratajczak, the highly regarded director of Georgia State University's economic forecasting project, told Congress' Joint Economic Committee that he expects no significant upturn in the economy until the first half of next year.
As a result, the unemployment rate, which was 10.1 percent in September, will pass 10.5 percent and an 11 percent rate "is not out of the realm of possibility," he warned.
Ratajczak, Allen Sinai of Data Resources, Inc., and Michael K. Evans of Evans Economics all said recent declines in interest rates should help spark a recovery within a few months. Ratajczak and Sinai believe the moderately paced recovery they expect can be sustained, but Evans said rising interest rates and large federal budget deficits will combine to abort the recovery during 1983.
The report on GNP included some particularly bad news about the level of business investment in new plants and equipment. Such investment, adjusted for inflation, fell sharply for the third quarter in a row and reached its lowest level in more than four years.
Most forecasters expect business investment to continue to fall during much of 1983 even if other parts of the economy begin to recover from their recession losses.
The foreign trade sector was also a drag on the U.S. economy in the third quarter as imports rose and exports fell, partly because of the unusual strength of the dollar compared with other currencies.
Personal consumption spending was up 1.4 percent in real terms in the third quarter, a gain about 1 percentage point smaller than in the first or second quarters. Ratajczak attributed some of that earlier strength in spending, and the relative weakness in the latest three months, to the fact that consumers knew that a cut in tax withholding was coming at midyear and spent part of the cut in advance.
"Those still waiting for the consumer to respond to the 1982 tax reduction will be sorely disappointed," he declared. "On the other hand, the 1983 tax reduction should begin to stimulate consumer activity during the first quarter."
Federal government purchases of goods and services increased at a 19.6 percent annual rate in the quarter, after adjustment for inflation, but the jump only offset declines in the previous six months. The increases were nearly evenly divided between defense and non-defense purchases.