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1984 GNP Spurts to 33-Year Record : Consumer Buying Spurred Economy in 4th Quarter; ’85 Outlook Also Good

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Times Staff Writer

The U.S. economy grew at a healthy annual rate of 3.9% during the fourth quarter, closing out the fastest year of business expansion since 1951 and signaling another good performance for 1985, the Commerce Department reported Tuesday.

Steady growth and low inflation should characterize the economy this year, most analysts believe, although the pace probably won’t be as brisk as in 1984.

At the White House, President Reagan said in a statement that “I am delighted” by the news. “We are succeeding in building strong and lasting economic growth without inflation,” he declared. “And I believe these results demonstrate once again that our economic program, given a chance to work, has worked beautifully in spite of the naysayers.”

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The Administration had worked hard to maximize the favorable publicity from the statistical reports, with Reagan providing a sneak preview at an inaugural ball Monday night when he told a happy crowd that the government would announce Tuesday some of the best economic news in three decades.

GNP Grows 6.8% in 1984

Overall, the Commerce Department reported, the gross national product--an estimated value of all the nation’s goods and services--grew 6.8% last year in the best performance since an 8.3% spurt in 1951. And the inflation rate for the U.S. economy last year was 3.7%, the lowest figure since a 3% rise in 1967, the department announced. (A separate government figure, the consumer price index, measures changes in the average American’s cost of living. The index for 1984 will be announced today.)

Most significant, however, was the figure issued Tuesday showing a healthy fourth-quarter expansion, which dissipated the fears of some analysts that slumping sales were threatening to curtail a vibrant recovery.

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“Things look a heck of a lot better than people were saying several months ago,” said Robert T. Parry, chief economist for Security Pacific National Bank in Los Angeles.

The Commerce Department previously had estimated a growth rate of just 2.8% for the fourth quarter, based on preliminary data. But a surge of consumer buying pushed up total sales by a hefty $32 billion, producing the final expansion rate of 3.9% for the last three months of the year. “The numbers are very impressive,” Parry said.

For the year, the total GNP was valued at $3.7 trillion, the department said.

‘In Position to Achieve 4%’

Most financial analysts and economists now expect the GNP to increase by 3% to 3.5% this year, a somewhat less optimistic target than the Reagan Administration’s 4%. But, “with lower interest rates and inflation under control, the economy is in a good position to achieve the 4% growth . . . “ Commerce Secretary Malcolm Baldrige told reporters Tuesday.

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Nevertheless, an annual growth rate in the 3.5% range “is not bad for the third year of a recovery,” L. Douglas Lee, vice president of Washington Analysis Corp., a financial advisory firm, said.

“Nothing is bad about the economy slowing down,” Lee said. “If we grew at 6% or 7%, we would worry about inflation heating up and imbalances pushing us into a recession.”

However, conventional economic theory asserts that the economy must grow at 3.5% simply to provide jobs for new workers entering the labor force each year and for those displaced by the rapidly changing nature of U.S. industry. Thus, a speedier expansion would be needed to create jobs for the large pool of 8 million unemployed Americans.

“Without a change in policy, unemployment will remain stuck at 7.2%, a level we called a recession in previous times,” Rudy Oswald, chief economist for the AFL-CIO, warned.

Flood of Imports A major part of the late 1984 surge in retail sales came from a “flood of goods produced abroad and not by American workers,” Oswald said. Imports are a mixed blessing: Foreign goods curtail jobs and hurt workers in certain industries--notably autos, steel, textiles and consumer electronics--but imports help all consumers by restraining price increases.

“It’s a new ballgame as far as inflation is concerned--we no longer expect inflation to worsen as the economy grows,” said Irwin L. Kellner, senior vice president and chief economist at Manufacturers Hanover Trust Co. “I think we’re in for a pretty good year.”

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The strong U.S. dollar, which has risen sharply in relation to the British pound, West German mark, French franc and Japanese yen, makes foreign goods much cheaper for American consumers. At the same time, the foreign competition inhibits American firms from raising their prices.

‘Terrific’ Economy The likelihood of steady growth accompanied by modest price rises makes most forecasters highly optimistic. “Our feeling is the economy will look terrific in 1985, and in 1986 we will have a year of quite good growth, too,” said Donald Straszheim, chief domestic economist for Wharton Econometrics, a forecasting and consulting firm.

But Straszheim cautioned that “we ought to look below the surface at two troubling problems: the unprecedented federal budget and trade deficits. The budget deficit ultimately could lead to dangerously rising interest rates because the federal government, with unlimited power to borrow, could crowd corporations and individuals out of the market. The trade deficit, although welcome in the short run because it restrains inflation, can do permanent damage to some key American industries.”

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