WASHINGTON -- The Clinton Administration yesterday received a flurry of promising economic reports that showed an acceleration in U.S. output, an easing of price pressures, and a drop in the annual federal budget deficit.
The Commerce Department reported that gross domestic product grew at an annual rate of 2.8% in the third quarter, a marked improvement over the 1.9% gain in the second quarter. Commerce officials said they were confident that growth will be even faster in the current quarter, an assessment shared by private analysts.
Separately, President Clinton announced that the federal budget deficit in fiscal 1993 totaled $255 billion, down from a record $290 billion the year before.
The GDP statistics confirm bond market expectations of a mild pickup in growth, but are devoid of the inflationary pressures that rattled the market in the first half of the year while the economy sputtered.
The budget report, while not a surprise to the market, nonetheless highlighted some progress in slowing the pace of federal borrowing that has bedeviled past administrations and irritated credit markets. The yield on the Treasury long bond yesterday moved back below 6% in afternoon trading.
"Lower deficits, lower interest rates have sparked the beginning of a significant economic recovery," Clinton said to reporters as he prepared to leave the White House to give a speech at Johns Hopkins University in Baltimore.
Commerce Secretary Ronald Brown issued a statement saying the GDP report and the inflation figures assured that "a sustainable recovery, led by low interest rates, is on the way."
House Democrats said the President deserves credit for producing a deficit reduction package that has helped drive down long-term rates and stir gains in homebuilding and other sectors of the economy.
"This report should strengthen business and consumer confidence in our economic future," said House Budget Committee Chairman Martin Olav Sabo, D-Minn. "At the same time," Sabo said, "the Federal Reserve can maintain interest rates at the current low levels without fear of an acceleration of inflation next year."
Bond market participants were impressed by the inflation figures in the GDP report. The fixed-weight price index for gross domestic purchases, a measure of what consumers actually paid for goods and services, rose only 1.8%. The implicit price deflator rose 1.6%, the smallest gain in 11 years.
Economists said the combination of plodding economic growth and an absence of price pressures could serve as a high octane mi that will propel bonds and stocks into higher territory.
"We're in an environment that favors moderate real economic growth and relatively low inflation, and that's the kind of situation that we foresee for all of 1994," said David Resler, chief economist for Nomura Securities Co. International.
The third-quarter advance in GDP marked two and a half years of economic growth since the recession that ended in March 1991. But it was also about half as fast as the average rate in past expansions, Commerce Department officials said.
Analysts said they still expect the economy and inflation to be held back by weak commercial real estate markets, defense cutbacks, tight-fisted state and local governments, and recessions in Europe and Japan that are curbing demand for U.S. exports. At the same time, U.S. corporations show no sign of ending their restructuring and layoffs.
Moreover, said Stephen Slifer, senior vice president for Lehman Brothers, "Tax increases come along and give us a conk on the head in the early part of 1994."
But analysts also agreed with administration officials that the economy is likely to close out the year on a strong note. Slifer said many economists are looking for growth in the range of 3% to 4% in the fourth quarter.
Commerce officials said crop losses from Midwestern flooding and the drought in the Southeast removed 0.6% from the GDP report, while cutbacks in assemblies at auto plants pared back another 1%.
Cleanup efforts and rebuilding, along with increased infrastructure spending, should contribute to a rebound in Midwestern flood areas, said Lewis Alexander, chief economist for the department. He also said Commerce officials expect automakers to make sizable increases in production to rebuild depleted inventories and meet customer demand in the current quarter.
Alexander said administration officials estimate that U.S. output for all of 1993 "quite likely" will exceed the 2.0% growth forecast in the midsession budget review of last summer. And, he went on, "we're seeing the stage for better economic performance in 1994."