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Economic Reports Ease Tensions in Financial Markets

May 23, 1987

Undated (AP) _ The latest government reports on the economy helped ease the financial markets’ fears of rising prices and higher interest rates.

The government Friday said economy as measured by the gross national product, grew at a brisk rate in the first quarter, while consumer prices continued to climb in April.

Still, analysts predicted the runup in growth and prices would not be enough to accelerate the recent rise in lending rates.

The Commerce Department’s GNP report showed the economy grew at a 4.4 percent annual rate from January to March, the fastest pace in nearly three years.

The Labor Department, meanwhile, said higher prices for food, energy and some imports raised consumer prices 0.4 percent in April, for an annual rate of inflation of 6 percent so far this year.

In the wake of the reports, the stock market made modest gains, as did bond prices.

The Dow Jones average of 30 industrials climbed 17.43 to 2,243.20, reducing its loss for the week to 29.32 points.

In the credit markets, prices of long-term government bonds, which move in the opposite direction from interest rates, rose $10 to $15 for each $1,000 in face value. The yield on the Treasury’s 30-year bond dipped to 8.91 percent from 9.04 percent late Thursday.

Earlier this week, worries that inflation would push interest rates higher had pervaded both the stock and bond markets.

The new GNP figure marked a slight revision from the 4.3 percent increase the Commerce Department had initially reported for the first quarter. The economy grew by 2.5 percent last year. Most analysts expect it to grow around 3 percent for all of 1987.

″The first quarter GNP number is deceptively high because it has been pumped up almost exclusively by an inventory buildup that isn’t going to be sustained because sales are too weak,″ said Jerry Jasinowski, chief economist of the National Association of Manufacturers.

″The truth is that the underlying growth rate is far below what the first- quarter GNP number would suggest,″ said Lawrence Chimerine, head of Wharton Econometrics, a forecasting service in Bala Cynwyd, Pa.

″Overall, the economy looks like it’s very sluggish,″ said Michael Penzer, vice president and senior economist for the Bank of America in San Francisco. ″With the economy so sluggish, it would be difficult to envision much higher rates of inflation.″

The April CPI increase matched 0.4 percent rises in March and February. Prices had gone up 0.7 percent in January.

In other economic developments Friday:

- The Commerce Department said orders for ″big-ticket″ durable goods inched up 0.1 percent in April, the poorest showing in three months.

- The same agency said after-tax corporate profits fell 5.5 percent in the first quarter, the biggest decline since a 9 percent drop in the first three months of 1986.

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