Though Expansion Is Slowing, the Economy Remains on Track to Set a

The nation's hearty economy is slowing a bit, but it is still headed toward setting a record for peacetime business expansions.

On Friday the Commerce Department estimated that the gross domestic product grew at a modest 1.4% annual rate from April to June, down from a 5.5% rate in the first quarter, because of drops in inventories and Asian- related trade.

The new figure surprised economists, many of whom expected GDP to flatten or decline.

Nevertheless, if the expansion, which began in March 1991, stays on the rails through yearend, it will eclipse the 92-month record of the 1980s for peacetime growth.

Technically it already has, as defense spending is down in the post-Cold War 1990s. By contrast, it rose in the 1980s, even though the United States was not engaged in prolonged military action. The Vietnam era of the 1960s ranks as the longest-ever expansion, at 106 months.

Friday's report was the first real sign that fallout from the economic trauma in Asia, which began a year ago, has reached our shores. The government will issue two more estimates of quarterly GDP as information becomes available.

Though the manufacturing sector is weak, domestic demand has remained unambiguously strong. Housing activity is booming, with record sales likely for the year.

"Economic growth slowed sharply, but not as much as we expected," said Bruce Steinberg, chief economist at Merrill Lynch & Co. "We believe the U.S. economy is now in the middle of a soft landing that should persist for the rest of 1998, followed by a modest pickup in 1999."

The 1990s have been even better times than originally thought, according to statistical revisions by the Commerce Department's Bureau of Economic Analysis, also released Friday.

With additional data, the average quarterly GDP growth rate from the fourth quarter of 1994 to the fourth quarter last year was revised upward to a 3.3% annual rate from the previously estimated 2.9%.

Annual GDP was revised upward for the past three years. The largest change was in 1996, when the growth rate was revised to 3.4% from 2.8%. Growth in 1997 was revised to 3.9% from 3.8%,, and growth in 1995 was changed to 2.3% from a previously reported 2.0%.

Data for personal consumption, business investment, exports, and state and local government spending were all revised upward for all three years, and federal government spending figures were revised down for all three years.

The most startling change was in the personal savings rate. It was revised down a huge 2.2 percentage points for last year's fourth quarter, to a barely visible 1.7% of personal income, from 3.9%. For calendar 1997 the rate was cut to 2.1%, from 3.9%.

The shift came mostly after a decision to exclude mutual fund disbursements from personal income for the sake of statistical consistency. But economists disagree over calculating the figure.

"There are a lot of problems with that (2.1%) number," said Nicholas S. Perna, chief economist at Fleet Financial Group. "But clearly if you get any slowdown in income growth, consumers will have to respond" by saving more and spending less.

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