The nation's economy roared ahead in the second quarter at an annual rate of 9.2 percent--the fastest quarterly growth rate in five years--while corporate profits recorded their biggest jump in eight years, the Commerce Department reported yesterday.
The swift pace of recovery, which has taken economists by surprise, is likely to continue during the third quarter of the year before slowing somewhat by the end of the year, analysts said yesterday.
The Commerce Department said that its revised estimate for the nation's gross national product in the second quarter also showed a slower inflation rate than previously estimated. The department said prices rose by 4.4 percent in the second quarter, rather than the 5.2 percent increase reported last month in the government's preliminary estimate.
In a separate report, the Commerce Department said that orders for durable goods dropped 3.6 percent in July after a 7.6 percent increase in June. However, much of the decline was in orders for aircraft and parts, which move erratically from month to month.
The Commerce Department originally had reported that second-quarter GNP rose at an 8.7 percent annual rate, after allowing for inflation. The upward revision announced yesterday left the second-quarter increase the biggest since an 11 percent rise in 1978 and "one of the larger ones on record," Commerce Department chief economist Robert Ortner said.
The recovery has given an enormous boost to U.S. companies' profits. After-tax profits climbed by 14.8 percent between the first and second quarters for the biggest quarterly gain since 1975, yesterday's report said. The $15.9 billion increase also was the largest dollar rise in profits on record.
White House spokesman Larry Speakes hailed the new GNP figures as "the latest in a series of positive economic signs showing that the recovery continues to build and pick up steam." Asked whether the quick pace may lead the Federal Reserve to tighten credit policy and push up interest rates, Speakes said "we have no complaint" about the Federal Reserve's monetary policy.
Most analysts view high interest rates as the major threat to the econmic recovery. The Federal Reserve has tightened credit conditions in recent weeks in an attempt to slow the rapid growth in the money supply. Yesterday the Fed reported a $500 million drop in the narrow M1 measure of the money supply, which includes cash and checking accounts, in the week ended Aug. 10. Financial markets had been hoping for a decline.
Recent increases in rates are thought to have slowed the housing boom, and some economists fear that they will crimp business investment in the later stages of the upturn.
However, the surge in profits reported yesterday is "a favorable omen for the months ahead," Commerce Undersecretary Robert Dederick said yesterday. It "provides a strong incentive for increased business spending on inventories and capital goods," Dederick said.
Before-tax profits rose even more strongly than after-tax profits, with a second-quarter increase of 18 1/2 percent, the release said. Dederick commented that this profits measure "leaped forward by almost one-third from the fourth quarter of 1982 to the second quarter of 1983, following a drop of 18.1 percent during the 1981-82 recession." He added that "this explosive advance was far above the average 20.4 percent gain for the first two quarters of prior postwar recoveries." The profits rebound from the 1973-75 recession was larger, however, at 38.1 percent.
The GNP increase was revised upward because of higher-than-estimated investment, a slower pace of inventory run-off, and a better trade performance, the Commerce report said. A consumer spending spree was still by far the biggest force driving the economy during the quarter, with spending in constant 1972 dollars up by $23.2 billion at an annual rate from the first three months of the year.
Third-quarter growth is likely to be fueled by a swing in business inventories as firms start to produce more to build up their lean stocks, and by further increases in consumer spending, analysts say.
The improvement in the economy already has led to sharp declines in the nation's unemployment rate, which stood at 9 1/2 percent last month compared with a peak of 10.8 percent in December. Unemployment is still considerably higher than it was before the recession began in 1981, however.
The fixed-weight GNP measure of prices showed a 4.4 percent annual rate increase in the second quarter, while another measure--called the implicit price deflator--increased at an annual rate of 3 1/2 percent, yesterday's GNP report said.