A Coming Drop In Car Output Signals Slow Growth Ahead

Although economic growth has been coasting at around a 3% clip in the first quarter, it will slow sharply, to 1.5%, in the second, says First National Bank of Chicago economist Diane C. Swonk. A major reason: Motor-vehicle output, which added 1.5% to gross domestic product in the first quarter, will subtract a like amount in the second.

Part of that was already in the cards, Swonk says, because the Big Three carmakers are implementing some model changeovers in the second quarter to get an early start on building new-model inventories before union contracts expire on Sept. 30. Thus, first-quarter output was hyped in anticipation of the second-quarter pause.

Now, because of sluggish vehicle sales so far in 1993, Swonk expects second-quarter output to be cut even more than planned. And the impact on reported economic growth will be exaggerated because seasonal adjustments assume that auto production is stronger in the second quarter than the first.

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