WASHINGTON -- The economy barely grew over the past three months as companies chose to forgo expansion and instead sold off part of their backlogs of goods, the Commerce Department said yesterday.
But traders and financial economists, together with Clinton administration officials, shrugged off the announcement that gross domestic output rose by only a half-percentage point during the second quarter. They pointed to signs over the last month that economic growth might gradually recover in the second half.
"April and May were clearly weak months, what people talked about as part of a bumpy soft landing," said Joseph E. Stiglitz, the chairman of the Council of Economic Advisers. "The indicators that came out in June and July have been more upbeat."
Sales of goods and services to consumers and other end users actually rose at a strong annual pace of 2.1 percent in the second quarter, allowing stores and other businesses to clear their shelves quickly of excess goods.
"Assuming that the inventory correction was well advanced in the second quarter, growth should resume a sluggish pace in the second half," said Rosanne M. Cahn, the chief economist for stocks at CS First Boston.
Martin N. Baily, a member of the Council of Economic Advisers, predicted that the pace of growth would rise through the third quarter and reach an annual rate of around 2.5 percent by the end of the year.
Most economists believe that the economy cannot grow faster than 2.5 percent or 3 percent a year without producing uncontrollable pressures for higher inflation.
Strong business investment and consumer spending compensated in the second quarter for the shrinkage in inventories, a continued drop in federal spending, a dip in housing construction and a persistent trade deficit.
Congressional Republicans were the least enthusiastic about yesterday's announcement, which could point to a fairly strong economy in 1996 that might help President Clinton's re-election campaign. Rep. Jim Saxton, R-N.J., the vice chairman of the Joint Economic Committee of Congress, said that the weakness during the second quarter justified a move to stimulate the economy by cutting taxes, shrinking the government and eliminating regulations.
"Although economic growth may revive in the future, we are clearly seeing the indications of a soft economy," he said. "This soft economy is the result of President Clinton's 1993 tax increase and the unwise policies of the Federal Reserve."
The Federal Reserve raised short-term interest rates seven times over a 12-month period beginning Feb. 4, 1994, in an effort to prevent brisk economic growth from leading to inflation. The central bank then shaved one of the short-term rates that it controls on July 6 in response to the economy's weakness in late spring.
Most private economists and many administration officials have viewed the interest rate increases as necessary.
Mr. Stiglitz played down potential risks to the economy's health in the coming months, particularly the threat of a deep recession in Japan.
While exports to Japan would fall if its economy slumped, these exports play such a small role in the U.S. economy that a 5 percent drop in Japanese economic output may trim economic growth in the United States by about one-tenth of a percentage point, he said.
Many private economists have begun warning that a recession in the United States becomes ever more likely as the current economic expansion continues into its fifth year, but Mr. Stiglitz took issue with this view.
Historical studies show that the odds of a recession in any given year of a recovery are unrelated to the number of years since the previous recession, he contended.
Yesterday's statistics also provided further evidence that inflation was under control. The prices of goods and services produced in the second quarter showed a 1.3 percent inflation rate, the same as the fourth quarter of last year.