Gross Domestic Product Posts Moderate Growth

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WASHINGTON (AP) _ Economic expansion slowed dramatically in the first three months this year, welcome news to those worried that an overheating economy would spark inflation pressures.

Still, financial markets retreated after the Commerce Department reported Thursday that the gross domestic product, the total of all goods and services produced in the United States, advanced at a moderate 2.6 percent annual rate in the first quarter of 1994.

The Clinton administration and private economists said the report is fresh evidence growth is healthy and inflation is in check.

"This rate of growth is enough to keep the deficit coming down and jobs coming into the economy," said President Clinton. "And it certainly should send a clear signal to the markets that we don't have an inflation worry."

Much of the growth slowdown was due to a huge drop in exports, along with weather-related slackening in home building and a decline in business construction.

As for the market reaction, analysts attributed it to profit taking _ noting that stock and bond prices already had rallied in anticipation of the latest figures.

"The rule is buy on the rumor and sell on the good news," said Allen Sinai, chief economist for Lehman Brothers in New York City.

"I think it's a good sign the economy is moderating," added Stephen S. Roach of Morgan Stanley Co. in New York. "There's nothing discouraging about the inflation numbers."

An inflation index tied to the GDP rose at an annual rate of 2.6 percent in the first quarter of this year, the Commerce Department said. And although it was the biggest increase since the first quarter of 1993 when it was up 3.6 percent, analysts said there was no cause for alarm.

Commerce Secretary Ron Brown, commenting on the drop in exports, said the only cloud on the horizon may be the sluggish economies in Europe and Japan. They pose "a risk to our economy," he said. "The United States cannot be the locomotive for recovery in all the advanced economies."

The economy boomed in the final three months of 1993, growing at a spectacular 7 percent annual rate, the highest since the start of 1984. For all of last year, the GDP rose 3 percent.

The growth late last year sparked inflation fears, leading the Federal Reserve to reverse a five-year policy and start boosting short-term interest rates. …