Fourth-Quarter 1988 National Economic Activity And First-Quarter 1989 Outlook - Fourth-Quarter 1988

Real gross national produce (GNP) grew at a seasonally adjusted annual rate of 2.0% in the fourth quarter (table 1). The restrained quarterly growth rate was the slowest in 2 years, and was substantially slower than the 2.5 % rate of the previous quarter. According to the U.S. Department of Commerce, the summer drought reduced the fourth-quarter growth rate by 1.1 percentage points. A growing trade deficit and a reduction in business investment were the key economic factors curtailing growth. The trade deficit widened by $6.8 billion, reflecting both a surge of imports and a slowing of exports. Business investment declined 3.7%, mainly as a result of a slowdown in computer sales. On a year-to-year basis, the economy grew at an inflation-adjusted rate of 3.8% for 1988, the fastest in 4 years, despite the drought. However, on a fourth-quarter-to-fourth-quarter basis, real growth measured 2.7%. Increased exports and business spending for plant and equipment accounted for much of the 1988 GNP growth. Employment continued to grow as the manufacturing sector added 414,000 new workers (table 2). Of these, the primary metals industry added 26,000 workers, and the clay, glass, and stone industry added 10,000. The civilian unemployment rate remained low throughout 1988, fluctuating between 5.3% and 5.4% during the last quarter.