The nation's economy grew at a sluggish annual rate of 1.3 percent from January through March, far slower than previously believed, the government reported today. The Commerce Department said that the increase in the broadest measure of economic health _ the gross national product _ was much weaker than an initial estimate it made one month ago. At that time, it put GNP growth at a faster 2.1 percent rate. The weak growth was accompanied by a spurt in inflation as a price index tied to the GNP climbed at steep annual rate of 6.7 percent, the biggest inflationary surge in more than eight years. The increase was revised from an initial estimate of 6.5 percent. Although surprised by the size of the downward GNP revision, economists said they did not believe it indicated the country was in danger of toppling into a recession. They noted that the weakness came from a big reduction in the estimate of how much business inventories grew during the first three months of the year. Slower inventory growth was viewed as a favorable sign for future growth because it means businesses will have less of a backlog of unsold goods to work down before they can start ordering again. ``The first quarter was a time of major inventory correction and actually a healthy correction,'' said Allen Sinai, chief economist of the Boston Co. ``It was setting the economy up for sustained growth provided that sales stay up.'' The 1.3 percent first quarter GNP increase was only a slight improvement from a 1.1 percent GNP growth rate in the final three months of 1989. The growth rates in both quarters were the slowest since the summer of 1986 when the economy grew at a 0.8 percent annual rate. The inflation rate was the highest since it raced ahead at an annual rate of 7.7 percent in the final quarter of 1981. The GNP price guage rose 4.5 percent for all of 1989. Many economists expect inflation to moderate as the year progresses. They contend the first-quarter report was skewed by unusual winter weather that killed crops and drove up fuel prices. Indeed, Commerce said ``about one-half of the step-up was due to food and energy prices; large increases in January followed unusually cold weather in December.'' The growth rate was lowered today because of new information on business inventories, which were revised down $8.5 billion from the original report. The weaker economic growth means reduced tax revenues and adds to the problems confronting administration and congressional budget negotiators. Talks resume today on developing a formula to cut the deficit to the $64 billion mandated by the Gramm-Rudman balanced budget law for the fiscal year beginning Oct. 1. Nevertheless, it was proof the current expansion, which began at the end of the last recession in November 1982, continued _ although slowly. A recession generally is defined as two straight declines in the GNP. The various changes means the GNP, after adjusting for inflation, totaled $4.188 trillion after the first three months of the year. ``The revision (in the GNP) was more than accounted for by change in business inventories,'' the department said. It said exports were revised up $9.9 billion, ``but this revision was largely offset in GNP by an upward revision of $9.0 billion in imports.'' In a companion report, the department said after-tax profits of U.S. corporations slowed to a 0.2 percent increase in the first quarter after rising 2.8 percent in the October-December period of 1989. Corporate profits had fallen during each of the first three quarters of last year, including a 1.1 percent drop during the comparable months of January through March. Surveys show that most economists believe overall growth during 1990 will total 2.0 percent, down from the 3.0 percent level of activity in 1989 and the slowest since activity declined 2.5 percent during the recession year of 1982. But many of the nation's top economic forecasters predict the economy will avoid a recession for another three years and are crediting Federal Reserve monetary policies for the extended growth. Sixty-three percent of the 68 professional forecasters responding to a survey by the National Association of Business Economists said they foresee no recession during the next three years. And 46 percent of those respondents said the primary reason for the economic expansion is ``effective monetary policy,'' James F. Smith, NABE president and professor of finance at the University of North Carolina, told a news conference earlier this week. The central bank's Federal Open Market Committee has tried for two years to stem inflation by keeping a tight grip on credit without slowing the economy so much that it skids into a recession.
