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 CHARLOTTE, N.C., Jan. 29 /PRNewswire/ -- Figures released today by the Commerce Department showing that real Gross Domestic Product rose by only 0.3 percent in the fourth quarter confirm that the economy remains "stuck in neutral," a First Union economist said today.
 "The report does not appear to confirm the extreme economic pessimism we've heard so much of recently," said First Union Chief Economist David Orr. "Yes, Americans bought fewer goods in the fourth quarter, but more services. And of those fewer goods, more were produced in the U.S."
 The GDP measures the production of goods and services by all sectors of the economy, not just the purchases of retail products by the consuming public, Orr said. "Focusing on just the personal consumption of 'goods' in the fourth quarter does show a real decline of 5.1 percent. But that was partially offset by a real 2.2 percent rise in spending on services, including health care, which rose 4.6 percent, even after adjusting for price increases. Add a $2.7 billion rise in inventories and a $23.0 billion drop in the foreign trade deficit, and the decline in retail spending is completely erased."
 Orr said that the economy has been stalled since early 1989, long before the "official" recession began in July 1990. Of the last 11 quarters, only in two has the real GDP change actually been negative, but in none of the nine positive quarters has it been above 2 percent.
 "The GDP can grow by 2 percent or less by improved productivity alone, without the need for more employment," Orr said. "That the level of production could remain essentially unchanged in the fourth quarter while the unemployment rate rose reconfirms the 'permanent estructuring' nature of current business strategy. This strategy is in contrast to the more traditional recession strategy of temporary layoffs to reduce production until a new inventory/sales balance is achieved."
 Orr said the recent drop in interest rates, coupled with the expected tax cuts and spending boosts by the federal government, will stimulate economic activity in 1992. However, economic slowdowns in Europe and Japan will hurt exports, he said.
 "Also, business profits have been under so much pressure for so long now that managers will not quickly backslide on their newfound religion of efficiency and productivity," Orr added. "Those factors, combined with the pressures of health care costs and regulatory constraints make it likely that the unemployment rate will remain stubbornly high and consumer confidence stubbornly low."
 In early December, the government began emphasizing the Gross Domestic Product as the key economic indicator instead of the Gross National Product. The GNP measures all goods and services produced by workers and capital supplied by U.S. residents or corporations, including those overseas. The GDP measures all goods and services produced by workers and capital located in the United States. Orr said the switch to the GDP makes the United States more compatible with how most other counties measure their economies.
 Other key highlights were:
 ---- Employment/Unemployment: Total job losses averaged 75,600 per month in the quarter, compared with a 60,300 per month increase in the third quarter. Excluding government and health care, the fourth quarter loss of jobs was twice as bad, at 152,000 per month. December's unemployment rate was 7.1 percent, compared with 6.8 percent in September and 6.1 percent in December 1990.
 ---- Inflation: Except for health care, taxes and education, 1991 was a low-inflation year, with the Consumer Price Index up only 3.1 percent. Components of the CPI showed the following increases in 1991: food, 2.5 percent; housing, 3.4 percent; clothes, 3.4 percent; cars, 3.3 percent; medical, 7.9 percent; entertainment, 3.9 percent; education, 8.4 percent; and tobacco, 11.1 percent. Gasoline prices declined 16.2 percent.
 ---- Consumer Spending: Retail sales in December were 0.9 percent above December 1990 before inflation adjustments. In November/December, the retail categories designated to track Christmas sales showed a 3.2 percent gain over November/December 1990, also before inflation adjustment. Auto sales continued to flounder, selling at only a 6.0 million annual rate in the quarter. The Consumer Sentiment Index (University of Michigan) dropped to 68.2 in December from 83.0 in September.
 ---- Housing: Single-family housing starts in the fourth quarter were at a 915,600 annual rate, up 4.7 percent from the third quarter and up 16.4 percent from the fourth quarter of 1990. Multifamily starts, at a 173,000 annual rate, were 4.4 percent above the third quarter, but still 32 percent below the fourth quarter of 1990. Existing home resales in December were 3.5 percent higher than the third quarter average and 6.7 percent above December 1990. The median price of $100,000 was 9.1 percent higher than December 1990. New home sales in November were 2.0 percent above the third quarter average and 5.9 percent higher than November 1990. The median price was $117,400, down 1.3 percent from November 1990.
 ---- Industrial Production: Manufacturing output in the fourth quarter was 0.5 percent below the third quarter annual rate, although December 1991 was 0.6 percent higher than December 1990. A look at specific industries shows a very mixed picture. The quarterly rate was dragged down by production declines in several industries: utilities, 7.0 percent; mining, 8.4 percent; aerospace, 9.0 percent; petroleum products, 8.8 percent; and raw steel, 10.3 percent. Numerous industries continued to fare decently, however, reporting these increases: printing and publishing, 8.5 percent; chemicals, 7.8 percent; apparel, 4.4 percent; office equipment and computers, 8.9 percent; and food processing, 4.1 percent. The capacity utilization rate in December was 79.0 percent versus 79.9 percent in September and 80.6 percent in December 1990.
 ---- Trade Deficit: The monthly average merchandise trade deficit for October/November was $5.0 billion, a 23 percent improvement from the third quarter. Since the U.S. is running a trade surplus in services of about $3.8 billion per month, the overall trade picture continues to improve. Merchandise exports in November were up 9.5 percent year-to- year, while imports increased only 1.6 percent.
 ---- U.S. Dollar: The dollar declined 3.8 percent in the fourth quarter from the third quarter and was virtually unchanged versus December 1990 when compared with a weighted average of major trading partners. Compared with the German mark, the dollar ended December at 1.52, down 8.9 percent from the end of September, but up 1.7 percent from the end of 1990. Against the yen, the dollar's year-end value was 124.8, down 6.1 percent from September and down 7.8 percent from December 1990.
 ---- Oil Prices: West Texas crude was priced at $18.65 per barrel at year-end, compared with $23.45 at the end of September, a 20 percent drop. In December 1990, it finished the year at $28.45, so 1991 saw a 34 percent plunge. By comparison, year-end 1989 was $21.80 and year-end 1988 was $17.25.
 ---- Interest Rates: The prime rate fell to 6.5 percent at the end of December, compared with 8.0 percent in September and 10.0 percent in December 1990. Ninety-day Treasury Bills averaged 4.12 percent in December, compared with 5.25 percent in September and 6.81 percent in December 1990 (discount rate basis.) Thirty-year Treasury Bonds averaged 7.70 percent in December, compared with 7.95 percent in September and 8.24 percent in December 1990. Mortgage rates averaged 8.5 percent in December, compared with 9.01 percent in September and 9.67 percent in December 1990. High quality, long-term municipal bonds averaged 6.69 percent in December compared with 6.8 percent in September and 7.09 percent in December 1990.
 As of December 31, 1991, First Union Corporation (NYSE: FTU) had assets of $46.0 billion and operated 1,062 banking offices in North Carolina, South Carolina, Georgia, Florida and Tennessee and 274 nonbanking offices in 36 states.
 -0- 1/29/92
 /CONTACT: Media -- Sandy Deem, First Union Corporation, 704-374-2710/
 (FTU) CO: First Union Corporation ST: North Carolina IN: FIN SU: ECO

DF -- CH003 -- 4795 01/29/92 14:02 EST
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Date:Jan 29, 1992

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