GDP Rises 3.8% in 1997, Its Biggest Gain Since 1988

The U.S. economy grew last year at the fastest pace in nearly a decade, even after the government lowered its estimate of fourth-quarter growth a notch.

The U.S. gross domestic product surged 3.8% for all of 1997, the strongest showing since 1988. In the fourth quarter alone, the GDP expanded at a 3.9% annual rate, the Commerce Department said in a revision from its previous estimate of 4.3%.

The growth was accomplished at the same time inflation subsided to the mildest rate in 32 years, 2% for all of 1997 and a scant 1.4% annual rate during the last half of the year.

The economy’s armor seems almost impenetrable. “We’re in better shape now than we’ve been in a generation,” with low unemployment, low inflation and a federal budget that’s almost in balance, said David Wyss, an economist at DRI/McGraw-Hill in Lexington, Mass. “We had a red-hot economy last year.”

And yet, with the turmoil in the Pacific Rim looming over the U.S. economy, analysts are betting the growth in the GDP will lose momentum this year, slowing to about 2.6%, according to a National Assn. of Business Economists’ forecast.

There were hints of trouble to come in the fourth-quarter report. Trade helped U.S. growth in the quarter, a relatively rare occurrence, but not nearly as much as first estimated. The estimate of export growth was cut from an 11.3% rate to 10%. Import growth was much stronger, 6.4% for the quarter, versus 1.3%.

The December import increase, which wasn’t known at the time of last month’s initial estimate of fourth-quarter GDP, was the largest since March 1993.

Other sectors of the economy in the fourth quarter look much the same in Friday’s report as they did in last month’s estimate. Consumer spending, accounting for about two-thirds of economic activity, grew at a 3.1% rate instead of 3.2%. Housing construction increased at a 9.7% rate versus 10.4%. Business construction and investment in new equipment declined at a 3.5% rate instead of 3.6%.

The estimate of growth in government spending was cut from a 1.6% rate to 0.4%.

The various changes left the gross domestic product, unadjusted for inflation, at $8.08 trillion in 1997.

Separately, a University of Michigan study showed consumers were more upbeat about their finances and economic prospects in February than they were in January, echoing a report on consumer confidence earlier in the week from the Conference Board.

The university’s index of consumer sentiment for February rose to 110.4--the highest ever--from 106.6 during January, people with access to the statistics said. The index is based on 100 set in 1966. When the index changes, Americans are more or less comfortable with their finances and the state of the economy.

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Gross Domestic Product

Percentage change from previous quarter, annualized rate:

4th quarter: +3.9%

*

Source: Commerce Department