GNP Rises at Sluggish 1.1% Rate : Slowest Pace Since Recession Ended 3 1/2 Years Ago

WASHINGTON —  The nation’s economic growth slumped to an annual rate of 1.1% from April through June, the slowest pace since the end of the last recession 3 1/2 years ago, the government reported today.

The weakness in the gross national product, the broadest measure of the nation’s economic health, means that the economy expanded during the first half of 1986 at a sluggish 2.4% annual rate, far below the Administration’s hopes for growth this year at an annual rate of 4%.

“We need to be concerned,” Senate Majority Leader Bob Dole said of the GNP figures. He urged the Federal Reserve Board, which cut its bank loan rate from 6.5% to 6% earlier this month, to approve another half-point cut in the basic lending rate to spur the economy.

At the White House, Beryl Sprinkel, the chairman of the presidential Council of Economic Advisers, said the second-quarter slump reflected such “temporary adjustments” as oil and gas industry cutbacks in expectation of reduced profits, but he conceded that if such a prolonged, widespread weakness continues, “it would be a great concern.”

The Commerce Department said the GNP slid to less than one-third of the 3.8% rate for the first three months of the year.

2.1% Price Index Hike

Growth in the April-June quarter was the slowest since a 0.6% increase in the final three months of 1982, when the 1981-82 recession was coming to an end.

The news on inflation remained positive, however. A price index tied to the GNP rose at an annual rate of 2.1% in the April-June period, the slowest increase in almost two decades.

The Administration has already said that the weaker economic growth will add about $10 billion to the budget deficit this year and that it will force a downward revision in growth estimates for the whole year.

Although Administration economists insist that growth will still rebound in the second half of the year, many private economists have been revising their forecasts downward to show sluggish growth for the rest of the year.

The economy has been in a period of basically sluggish activity since the summer of 1984. For the last two years, the GNP has been rising at an average annual rate of 2.5%. By contrast, the economy surged ahead at an annual rate of 7% in the first 18 months of the current recovery.

The principal reason for this sharp slowdown has been a huge deterioration in the country’s foreign trade performance.

Strong Competition

The domestic manufacturing industry has been in a virtual recession as foreign competition has stolen sales of U.S. goods both in this country and abroad.

That situation continued to worsen from April through June as imports surged at an annual rate of 20.1% while U.S. exports were rising at a 3% annual rate.

The trade deficit subtracted $20.4 billion from total GNP at an annual rate in the second quarter.

Another big drag came from a dramatic plunge in the growth of business inventories from April through June. Other weakness came from a big drop in business investment spending.

Strength came from a big rise in consumer spending and growth in residential construction and federal, state and local government spending.