Economy Stronger Than Forecast

WASHINGTON —  The economy was slightly stronger in the fourth quarter of 1991 than previously thought, the Commerce Department said Friday, but analysts said it still lacks enough vigor for a solid recovery.

Gross domestic product increased at an 0.8% annual rate from October through December. The previous estimate was 0.3%.

In another report, a banking trade group said the percentage of Americans behind on their loan payments declined in the last three months of 1991. It was the first drop in nearly two years.

However, that was not the case in California, where the loan delinquency rate rose to 2.66% in 1991 from 1.85% a year earlier.

Despite the slight improvement at year’s end, GDP--which measures output of goods and services--shrank for all of 1991, the first such contraction in nine years.

The department said consumers cut their spending a little less than it estimated on Jan. 29, and businesses stockpiled more goods.

Neither development encouraged private economists, who warned that the economy will be too weak in the first half of 1992 to significantly cut unemployment.

“The growth that we saw was coming from undesired and involuntary inventory accumulation that businesses are not prepared to continue because of uncertainty about forward sales,” said Robert Dederick of Northern Trust Co. of Chicago.

“What you have is basically a flat economy,” he said. “It’s not declining in any fundamental sense, but it just can’t get going.”

A bright spot was an indication that inflation was in check. Prices measured by the fixed-weight inflation measure rose at a 2.2% annual rate in the fourth quarter, compared to 2.6% in the third.

“It helps set the stage for recovery,” said Robert McGee, an economist at Tokai Bank in New York. “With lower inflation, the consumer will be able to buy more.”

Technically, the economy is out of recession because it has had three straight quarters of growth, albeit weak--1.4% in the second quarter of last year, 1.8% in the third and 0.8% in the fourth. It contracted for six straight months before that.

But the growth was too weak to prevent GDP from shrinking 0.7% in 1991. It was the first time since 1982--the last recession--that economic output had declined. In 1990, the economy grew a scant 1.0%.

In the loan delinquency report, the American Bankers Assn. reported that a seasonally adjusted 2.58% of consumer loans were 30 days past due at the end of the fourth quarter, down from 2.74% three months earlier.

Robert Dugger, the association’s chief economist, cautioned that the delinquency rate remained high by historic standards and was virtually the same as the 2.57% rate of a year ago.

Lower interest rates are making it easier for some consumers to meet loan payments, but Dugger said the fourth-quarter drop may be explained, at least in part, by a rising number of personal bankruptcies. Banks are being forced to write off more loans as losses, thus removing them from the delinquency list, he said.

The decline in delinquencies occurred as Americans sought to pay off debts by trimming spending, producing a drag on economic growth. The Commerce Department reported separately Friday that the nation’s gross domestic product expanded at a 0.8% annual rate in the fourth quarter.

New England recorded the highest delinquency rates: Rhode Island, 5.92%; Massachusetts, 5.7%, and New Hampshire, 5.5%. The lowest rates were in Colorado, 1.34%, and Florida and Washington state, both 1.48%.

The Fallout From the New Figures

The economy grew at an annual rate of 0.8% in the final three months of last year, faster than previously believed, the government reported. The revised 0.8% rate of growth in the gross domestic output--total goods and services--compared to a 0.3% estimate a month ago.

* INFLATION: The growth was not accompanied by a resurgence of inflation. An index measuring a changing marketbasket of goods rose at an annual rate of 1.7% in the same three months.

* WORRIES: Whether the country remains technically in recession, there is worry about rising unemployment because the economy cannot absorb new workers. Also, there are fears that increasing factory inventories will translate into production cutbacks. Many are forecasting that the GDP in the current quarter will be flat or actually decline slightly.

* POLITICS: The slow recovery means political problems for President Bush: His approval ratings have plummeted. The changes in the fourth quarter still mean that the GDP for the whole year declined by 0.7%, the first annual setback since 1982.

* SPENDING PATTERNS: The revised figures showed that there was $7.3 billion more in consumer spending during the period than previously believed. Overall, consumer spending still fell at an annual rate of 0.2%. Trade figures were revised upward, as was housing construction.

Gross Domestic Product

The GDP measures all the goods and services produced by workers and capital located in the United States, regardless of ownership.

4th quarter: +0.8%