The American economy grew at only a 1.1 percent annual rate in the second quarter, the Commerce Department reported yesterday, and many forecasters are becoming increasingly doubtful about the outlook for the rest of the year.
The second-quarter increase in the gross national product, adjusted for inflation, was the weakest since late 1982, the end of the last recession. Strong gains in consumer spending and housing were largely offset by declining business investment and a rising trade deficit, the department said.
While most economists remain confident that the 3 1/2-year-old economic expansion will continue, a few are worried that problems in the manufacturing, mining and agriculture sectors could drag the nation into a recession.
However, the department's Bureau of Economic Analysis also released revised GNP figures for the past three years and the first quarter of 1986 that showed the economy earlier was growing more strongly than was thought.
Real GNP increased 2.7 percent in 1985 rather than 2.2 percent, and in the first quarter it rose at a 3.8 percent rate instead of a 2.9 percent rate, the department said. A previously reported 0.7 percent gain in 1985's fourth quarter also was revised upward to 2.1 percent.
The revisions indicate that the economy has grown at about a 2.5 percent pace since the middle of 1984 instead of 2 percent, but still well short of the 4 percent annual gains sought and predicted by the Reagan administration.
The Commerce Department also reported that the GNP price index rose at a 1.8 percent rate in the second quarter, down from a 2.5 percent rate in the first quarter and 3.7 percent for all of 1985. The first-quarter figure for inflation was not changed by the revisions, and those for the prior three years were changed only slightly.
Many private forecasters earlier were optimistic that lower interest rates, lower oil prices and a falling U.S. dollar on foreign-exchange markets would push growth this quarter and next to a 4 percent rate or more. Now, many are revising their forecasts downward.
Some of the analysts expect no pickup at all from the 2.5 percent average growth rate for the first six months of the year, and some suggest the nation may do no better than the 1.1 percent rate of the second quarter.
A few economists, including Alan Greenspan, former chairman of the Council of Economic Advisers, believe that chances of a recession are rising.
Commerce Secretary Malcolm Baldrige told a press conference that the second-quarter report "confirms a period of sluggish growth.
"The reasons for this slow growth are that oil and gas exploration and production have been curtailed, new-car production was cut back to trim excess inventories, and, based on estimates from limited data, imports continued to increase," Baldrige said.
"These negative influences on our economic growth should be changing for the better in the near future," he continued, adding, "The precise timing and strength of the pickup in economic activity, however, are uncertain."
At the White House, CEA Chairman Beryl Sprinkel also acknowledged that the second-quarter numbers "reflected sluggish performance," but he, too, said that the economy would do better later this year.
The administration will issue a revised forecast for 1986-87 in two weeks.
The Commerce report drew sharp responses from some congressional Democrats. Senate Minority Leader Robert C. Byrd of West Virginia called it "only the latest of recent disheartening economic news. This report, as well as other data emerging in the last several weeks, refutes the common belief that we are enjoying a strong recovery," he declared.
Economist Roger Brinner of Data Resources Inc., a consulting firm, was among those discounting talk of a recession. "People are going to make much too much of that 1.1 percent figure," he said.
A better perspective is that real output grew at an average rate of 2.5 percent in the first half, about its same growth rate since mid-1984, Brinner said. "I think we will have about a 3 percent pace in the third quarter and about a 2 percent rate in the fourth. In the third quarter, you've got two things going for you: You won't have the big increase in oil imports and you won't have to work off the auto inventories," he said.
Moreover, he argued, "The worst of the oil-related decline in capital spending is over. In the fourth quarter, we'll be back down to 2 percent growth because of the first dose of Gramm-Rudman cuts in federal spending."
In the second quarter, personal-consumption expenditures rose at a 5.9 percent rate after adjustment for inflation as American households bought more gasoline and new cars, the Commerce Department said. Analysts said lower prices and low-cost financing provided by auto makers helped boost sales of those goods, and most expect smaller increases in consumer outlays in coming quarters.
Spending for construction of new housing jumped at a 15.4 percent rate in the quarter, following an 11 percent rate of increase in the first three months of the year, as lower mortgage interest rates spurred new-home sales.
Meanwhile, businesses added to their inventories at a substantially slower pace than in the first quarter, a move that offset about two-thirds of the gain from consumer spending. At the same time, business spending for new plants and equipment fell for the second quarter in a row, primarily because of cutbacks in the oil industry.
A worsening of the nation's trade deficit -- estimated by Commerce on the basis of only partial data for the quarter -- also held down GNP, as foreign goods and services, rather than domestically produced goods and services, were sold to consumers and businesses.
The key to what happens to the economy in the second half of this year may depend heavily on whether the trade deficit begins to shrink.
"To take up the slack, a turn in trade is needed," said Allen Sinai, chief economist at Shearson Lehman Bros. If such a turn occurs, then real GNP could increase at a 3 percent rate in coming quarters, he said.