American economic expansion slows

Press, 23 March 1985, Page 23

American economic expansion slows

NZPA-Reuter Washington

The United States economy’s expansion slowed in the first three months of this year, expanding at a 2.1 per cent annual rate, the Commerce Department said yesterday. The tentative, or “flash” estimate on the unfinished first-quarter performance of the gross national product shows the economic expansion has lost power since the end of last year and is now proceeding at a subdued pace.

In the closing quarter of last year the G.N.P., the broadest measure of economic activity, increased at a revised 4.3 per cent yearly clip, instead of 4.9 per cent

estimated a month ago. The G.N.P. registered a gain of 6.8 per cent during all of last year. The G.N.P, was weaker in the first quarter than in the final three-month period of last year partly because of the rising tide of foreign imports, the department said. Economists say the United States can trace many of its trade troubles to the persistently strong United States dollar, which makes goods coming from overseas less expensive. Deterioration in the trade balance will erode economic growth this year, analysts say. The 1985 merchandise trade deficit will probably set a record, exceeding the 1984 deficit of $U5123.31 billion ($NZ277.45 billion), which is the existing annual high. Forecasts for this year’s

GNP increase range between 3.5 and 4.5 per cent. At least some of the slow-down from 1984 reflects the powerful impact the dollar has on the economy. By lowering the price of imports and adding to the competition ’American industries face, the dollar has helped hold down inflation. But the Commerce Department “flash” estimate said the increase in the G.N.P. in the first quarter was smaller than in the fourth quarter because inflation had strengthened. The department, in an estimate accompanying the G.N.P. figures, said inflation was running at a 5.4 per cent annual rate.

This expected inflation performance represented an acceleration from the fourth quarter when prices advanced 2.8 per cent.