Growth Pace Is Slowest In 3 Years, U.S. Says;Rise in GNP Drops to 1.7% in Quarter
Weak consumer spending and a sharp decline in housing construction limited U.S. economic growth to only a 1.7 percent annual rate in the second quarter, the slowest pace in almost three years, the Commerce Department said yesterday.</br></br>The increase in the gross national product, adjusted for price changes, was down sharply from the first quarter's 3.7 percent rate and last year's 2.8 percent gain. However, more than half of the first quarter's rise was attributable to an assumption that farm production would return to normal this year following last year's widespread drought.</br></br>Excluding the bounceback from the drought, the 1.7 percent rate of increase in GNP-the nation's total output of goods and services-was actually slightly larger than in the previous quarter. Taken as a whole, the report did little to resolve the increasing debate over whether the nation is headed for a recession or just a period of slow growth.</br></br>Meanwhile, there was mounting evidence that the Federal Reserve has taken another small step to reduce interest rates to avoid a recession. The federal funds rate, the interest rate financial institutions charge one another on overnight loans, remained close to 9 percent for the third straight day, down from the 9 1/4 percent level the Fed had been targeting since early this month.</br></br>A number of analysts said they were almost fully convinced the Fed is now aiming at the lower figure for the federal funds rate, a key number to which most other short-term interest rates are tied. The analysts also said they expect all major banks shortly to lower their prime lending rate from 11 percent to 10.5 percent, as Chase Manhattan Bank did two weeks ago and Charlotte, N.C.-based NCNB did yesterday.