Red-Hot Economy Cooling Off

The U.S. economy, weighed down by record trade deficits, saw growth slow to an annual rate of 1.6 percent in the spring - worse than previously estimated and the smallest gain in four years.

But many private economists believe the slowdown reported Thursday by the Commerce Department was only a brief pause. They are looking for growth to rebound in the current July-September quarter to a sizzling rate of 4 percent or higher.

The 1.6 percent second-quarter increase in the gross domestic product - the total output of goods and services from April through June - marked the slowest growth since the spring of 1995 when the economy grew at a 0.4 percent rate.

The second-quarter increase was slightly weaker than the 1.8 percent rate the government reported one month ago. The government had initially estimated, in July, that the economy grew by a 2.3 percent rate.

The slowdown came af8ter the economy surprised many analysts by growing at a brisk annual rate of 4.3 percent in the first three months of 1999.

In an effort to keep the economy from overheating and prevent an outbreak of inflation, the Federal Reserve has raised interest rates twice this summer.

Fed policy-makers next meet Oct. 5, and many economists do not expect another interest-rate increase at that time. They cite low inflation and no 222clear interest-rate-increase signals from Fed Chairman Alan Greenspan or other key Fed members.

An inflation gauge tied to second-quarter GDP rose 1.9 percent, less than the 2.1 percent the government estimated one month ago. In the first quarter of this year, that inflation measure rose 1.2 percent.

The GDP report said economic growth was reduced by 1.36 percentage points by a second-quarter trade deficit. That was a bigger reduction than the estimated loss of 1.34 percentage points in growth reported by the government last month.

Also Thursday, the government said the profits of U.S. companies decreased at an annual rate of $9.5 billion in the second quarter, a bigger decline than the $9.2 billion previously estimated. In the first quarter of the year, profits rose at a $47.1 billion rate.

In addition to facing stiff price competition from imports, U.S. companies are being pinched by increasing labor costs resulting from the lowest unemployment rate in 29 years.

The booming U.S. economy has been powered by robust consumer spending, which accounts for two-thirds of total economic activity.

The government said Thursday that consumer spending in the second quarter rose at an annual rate of 4.8 percent. That was more brisk than the 4.6 percent rate estimated one month ago but still slower than the torrid 6.7 percent pace of spending in the January-March quarter, the best showing in more than a decade.

Consumers continue to spend more than they earn, pulling the nation's personal savings rate - savings as a percentage of disposable income - to a record low onegative 1.3 percent in the second quarter, the same as previously estimated.

All the changes show the economy growing at an annual rate of $31 billion in the second quarter of the year, pushing the country's total output of goods and services to $7.8 trillion, after adjusting for inflation.

Written By JEANNINE AVERSA