Sudden slump in growth shakes confidence in US recovery: Drop in military spending helps to put brake on rise in GDP Poor figures may boost Clinton policies

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The Independent Online
GROWTH in the US economy slumped unexpectedly sharply in the first three months of the year, bearing out recent warnings from the Clinton administration that the US recovery may not be as firm as it first hoped.

Gross domestic product between January and March grew at an annual rate of only 1.8 per cent from the previous three months, the Commerce Department reported. This was less than half the 4.7 per cent in the last quarter of 1992. The fall was accounted for in part by a steep drop in defence spending as well as subdued consumer spending.

Ronald Brown, the Commerce Secretary, said the economy was growing at 'an unacceptably low rate', describing the figures as 'a significant retrenchment from the first quarter'.

Before yesterday, most economic experts had expected growth of about 2.5 per cent. The lower figure is certain to fuel concern that the upturn remains highly patchy and susceptible to further setbacks.

Angus Armstrong, economist at Morgan Grenfell, said the first-quarter growth had been the result of the accumulation of companies' stocks of unsold goods, produced as a result of optimism late last year. He said stocks were likely to be cut in the second quarter, leaving growth fairly flat.

The poor result may, in the meantime, bolster President Bill Clinton's case for pursuing his deficit-reduction plan and reviving his dollars 16bn fiscal stimulus programme, killed off by Republican filibuster last week. Mr Clinton, who yesterday marked his 100th day in office, commented that the figures 'clearly, I think, support the policies of this administration'.

Mr Armstrong said that US interest rates might also be cut again: 'If growth can only manage 2 per cent in the second half of the year, the Fed will be hard-pressed to avoid cutting the discount rate again.'

Even before the data were out, the Treasury Secretary, Lloyd Bentsen, conceded that he remained worried about possible economic relapse. 'We are doing better than most of the world, but not up to what we think we should.'

Although this was the eighth consecutive quarter of growth in the US economy, following the three quarters of recession registered in 1990/1, growth has been less than half as strong as in previous recoveries, offering little prospect for job creation.

As stocks on Wall Street sank slightly in response, analysts said the news led to new uncertainties. 'This is a little bit worrisome because that would suggest . . . that the economy was somewhat weaker than everybody thought it was,' said Thom Brown, chief strategist at Rutherford, Brown & Catherwood of Philadelphia.

But Norman Robertson, economics professor at Carnegie-Mellon University in Pittsburgh, said: 'I don't think this number in any way implies we are on the threshold of another recession.'

The dollar was little changed, falling slightly against both the pound and mark. It fell 0.35 pfennigs to DM1.58, while the pound rose 0.28 cents to dollars 1.5740.