Newspaper article THE JOURNAL RECORD

Gross Domestic Product Up, Prompts Cheers for Economy

Newspaper article THE JOURNAL RECORD

Gross Domestic Product Up, Prompts Cheers for Economy

Article excerpt

WASHINGTON (AP) _ A big build-up in business inventories contributed to healthy economic growth this spring, eliciting cheers from the Clinton administration and investors.

The gross domestic product, the total of all goods and services produced in the United States, grew at a 3.7 percent annual rate in the second quarter this year, the Commerce Department said Friday.

The news prompted a strong rally on the stock and bond markets, and some economists said it gives the Federal Reserve little reason to raise short-term interest rates again any time soon.

"It's just what the doctor ordered," said Allen Sinai of Lehman Brothers Inc. The underlying trend is for an economy growing at a rate of about 2.5 percent, he said, and if that holds, "This expansion will go on and on and on."

But some analysts cautioned that, because inventory accumulation is outstripping consumer demand, that could mean a slowdown through the balance of 1994.

For now, the news was welcomed in nearly all quarters.

"The U.S. economy continues to turn in a fine performance. So far, everything we've seen in 1994 confirms our forecast of a sustainable investment-led expansion with low inflation," said Laura Tyson, who heads President Clinton's Council of Economic Advisers.

Commerce Secretary Ron Brown, joining her at a White House news conference, conceded the public may not be getting the message.

Judging by recent polls, "There certainly is a perception problem. I don't think that this administration has gotten the credit that it should be getting," he said.

An index of inflation tied to the GDP rose a moderate 2.9 percent in the second quarter, matching the first three months of the year.

Federal Reserve Chairman Alan Greenspan warned Congress last week that interest rates may have to rise to ensure inflation remains in check. Restraining inflation once it is under way is a tougher task that could have damaging consequences, he stressed.

In four moves since February, the Fed has pushed rates from 3 percent to 4.25 percent for overnight loans between banks. It also has boosted its discount rate charged to member banks from 3 percent to 3.5 percent.

That has translated into higher borrowing costs for consumers and businesses as banks lifted the prime rate, a benchmark for many types of loans, from 6 percent to 7.25 percent.

Federal Reserve policy makers next meet Aug. …

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