US Economic Growth Holds At 2.5 Percent

THE US economy continues to grow modestly. The lastest government economic statistics, released yesterday, paint the picture of a relatively flat economy. According to Commerce Department numbers, the nation's gross national product (GNP), a measure of goods and services, grew at a 2.5 percent annual rate after inflation for the third quarter.

Economists were particularly unhappy to see that new exports dropped sharply. ``The report is better on the surface than it is in fact,'' says Robert Dederick, chief economist at Northern Trust Company in Chicago.

Many economists believe the latest statistics will be the last good economic news for several more quarters. ``Things look softer on the production side,'' says Robert Barbera, chief economist for Shearson Lehman Hutton. ``It looks like we may have a couple of quarters of weak economic growth ahead.''

Some of the key engines that have propelled the economy are starting to weaken. Exports, government spending, and housing are sputtering. ``We ended the quarter on a very weak note,'' says Mickey Levy, chief economist for First Fidelity Bancorporation in Lawrenceville, N.J. Consumer spending, however, was strong as a result of auto company sales rebates.

The economy has been gradually slowing all year. In the first quarter, GNP grew at a 3.7 percent rate, helped by a rebound in the drought-devastated farm sector. By the second quarter, the economy grew at a 2.5 percent annual rate - the rate now forecast by the White House. The latest numbers, says Wayne Wong, of Fixed Income Management at Marinvest, show ``the soft landing is still in effect.''

A soft landing for the economy means a period of slow growth without a recession - that is, a downturn in the GNP of two consecutive quarters. ``What we are seeing is a tired expansion,'' says Mr. Dederick.

There is little doubt the GNP numbers will interest the Federal Reserve Board. Fed chairman Alan Greenspan has said in the past that the central bank was targeting a growth rate of 2 to 3 percent. With the economy now icing down, Mr. Levy says the implication of the economic numbers is for lower short-term interest rates in the future. ``The timing is uncertain, but rates are bound to fall,'' Levy says.

One sector the Fed will certainly be watching over the next few weeks is the auto industry. To stimulate 1989 model-year sales, the automakers gave dealer and consumer rebates in August and September. These sales efforts may have worked too well - capturing some 1990 model-year sales. In the first two selling weeks of October, the spark has gone out of sales.

At the same time, the automakers have kept their foot on the gas pedal as far as production is concerned. General Motors Corporation economist David Munro says this higher production rate is mainly due to competition as automakers fight for a share of market. ``Every manufacturer is trying to keep the pipe line stuffed and convince the others they are trying to keep the pipeline stuffed,'' Mr. Munro says.

If sales remain depressed - which is not part of Munro's forecast - inventory levels would rise by early next year. ``Then you have GNP problems,'' he says. By way of contrast, the sales efforts by the automakers helped reduce inventories in the third quarter.

The housing sector is also likely to occupy the Fed's attention. Recent surveys by the National Association of Home Builders (NAHB) have found builders turning pessimistic. In the first week of October, 53 percent of the builders reported diminishing numbers of potential home buyers visiting model homes compared with 43 percent in September. Those reporting high traffic slid from 22 to 12 percent.

Dave Seiders, an economist at NAHB, says the industry is close to the bottom in terms of new starts. However, he adds, ``I don't see much change in the next couple of quarters with gradual improvement next year.'' On a more positive note, mortgage rates are slipping.

One of the brighter sides of the economy is business spending for new plant and equipment. Third-quarter statistics indicate business is still upgrading production machinery faster than consumer spending or exports. But Ken Goldstein, an economist with the Conference Board, a business research organization, says the pace will slow over the next two quarters as profits shrink. ``Once we get past the camel's hump and cash flow increases a little bit, business investment will rise a little faster,'' Mr. Goldstein says.