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Spokane, Washington  Est. May 19, 1883

Economic Growth Slows To 2.1% 1995 Increase Was The Worst Since Recession Year Of 1991

Associated Press

The economy grew just 2.1 percent last year, the poorest showing since the recession year of 1991, and it was creeping along at less than half that pace at year’s end.

The Clinton administration, whose hopes for a November election victory hinge in large part on the economy, insisted that the winter weakness will be followed by a springtime rebound. But private economists worried that the country may be mired in a growth recession.

The Commerce Department reported Friday that the 2.1 percent increase in the gross domestic product, the country’s total output of goods and services, was the smallest advance since a decline of 1 percent four years ago. The GDP grew 3.5 percent in 1994.

For the fourth quarter, the economy grew by a barely discernible 0.9 percent, held back by nervous consumers and special factors such as the partial government shutdown.

Joseph Stiglitz, the president’s chief economist, said that despite the dismal fourth-quarter figure, there were “several kernels of good news for 1996” embedded in the report. He predicted that a big effort to reduce unsold goods, which depressed growth during much of 1995, was ending.

But private economists noted scant strength in the domestic economy in the final three months of the year as consumer spending rose a meager 0.8 percent.

Analysts blamed continued unease over job layoffs, heavy debt burdens and weak income growth for the poor showing in a sector that accounts for two-thirds of total GDP.

Overall GDP actually would have dipped into negative territory in the fourth quarter had it not been for a big narrowing in the foreign trade deficit.

Construction of new homes and apartments, meanwhile, rose modestly in the final three months of 1995 and climbed 4.4 percent in January. But for all of 1995, housing construction fell 7.3 percent, the first drop since the 1991 recession.

Many analysts noted that outside of a 3.6 percent GDP increase in the third quarter last year, every other quarter featured growth below 1 percent. That fits the classic definition of a growth recession in which the economy keeps expanding but at such a weak pace that unemployment rises.

The slowdown last year was engineered by the Federal Reserve, which doubled interest rates beginning in 1994 in an effort to keep inflation in check. Some economists have questioned whether the Fed overdid the credit tightening and has been too slow to cut interest rates.

“This is a soft landing on a bumpy runway,” said Robert Dederick, chief economic consultant at Northern Trust Co. in Chicago. “If we hadn’t had the strength in exports, the economy would have completely stalled out in the fourth quarter.”

Jerry Jasinowski, president of the National Association of Manufacturers, urged the Fed to cut rates again in March by one-half percentage point, double the quarter-point moves so far.

“The anemic performance in the fourth quarter is due to ongoing problems having to do with high real interest rates, high consumer debt loads and overbuilt inventories,” he said.

The loss of output from federal workers who were furloughed in the budget standoff trimmed 0.25 percentage point from fourth-quarter growth, officials said.

For all of 1996, the consensus forecast is for GDP growth of around 2.2 percent, little changed from the 1995 performance.