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CONSUMER SPENDING DRIVES GROWTH IN GDP

 CONSUMER SPENDING DRIVES GROWTH IN GDP
 CHARLOTTE, N.C., April 28 /PRNewswire/ -- The real Gross Domestic


Product increased 2.0 percent in the first quarter, driven primarily by a 5.4 percent quarterly jump in consumer spending, while restrained by a $26.1 billion drop in inventories.
 The retail sales bounce began in January, just as surveys were showing consumer confidence having dropped sharply, said First Union Chief Economist David Orr, speaking at a public forum at First Union's Retail Investment Center.
 "That pattern emphasizes a traditional American theme, 'When I get depressed, I go shopping. Then, I feel better.' Sure enough, by March, the consumer sentiment survey was rising. Even the media are more optimistic now, emphasizing upbeat news when possible," Orr said.
 "Almost forgotten in the recent political and economic malaise is the strong natural tendency for a private property-based, market-oriented, profit-driven economy to grow," he added. "It takes a lot of baggage to suppress the forces of expansion. Unfortunately, structural constraints on growth, such as the unwinding of inflation and the growing federal budget deficit, have been overwhelming since late 1988."
 Orr said the quarterly upswing was bolstered by several short-term stimulants: lower mortgage payments, early tax refunds, extended unemployment benefits and reduced tax withholding. The export/import balance also was more favorable than it will be later in the year, he said, because of economic weakness in Europe and Japan.
 "Time is finally on our side," Orr said. "It has restored, after five years, a healthy supply/demand balance to the housing and motor vehicle sectors. Time is also resolving the damage to our financial institutions, permitting them to better fulfill their lending role. Also, the corporate restructuring drive of the past several years has begun to produce solid profit gains, which will result in a more stable employment picture and less employee anxiety."
 Orr said a slow recovery does not mean gradual, steady improvement across the board.
 "It means sharp upturns in some industries and regions will be offset by poor trends elsewhere. Likewise, there will be quarterly spurts in the GDP, maybe even one quarter of 4 to 5 percent growth, followed by relapses. Business activity will be erratic, reflecting inability to get all the economic cylinders cranked up simultaneously. Time is overcoming many structural barriers, but some, such as the decline in defense spending and demographic shifts in consumer demand, still are not gone."
 Other key highlights included:
 -- Employment/Unemployment -- Only 1,300 new jobs were created per month in the first quarter, but that was still much better than the 61,300 average monthly decline in the fourth quarter and significantly improved from the 239,700 per month plunge in last year's first quarter. The unemployment rate in March was 7.3 percent, up from 7.1 percent in the fourth quarter and 6.7 percent in March of 1991.
 -- Inflation -- The Consumer Price Index for March was 3.2 percent higher than in March of 1991. A decline of 1.1 percent in gasoline, and very low increases in items like food, 1.8 percent, and furniture, 1.8 percent, offset continued higher rates for medical care, 7.8 percent, and education, 7.9 percent. During the first quarter alone, the annual rate was 3.7 percent.
 -- Consumer Spending -- Retail sales in March were 0.7 percent higher than in March of 1991, and the first quarter was 11.9 percent above the fourth quarter at a seasonally adjusted annual rate, before inflation adjustment. Domestic motor vehicle sales in the quarter were 4.3 percent ahead of last year's first quarter, with all of the gain in light trucks, up 15 percent. The sales rate showed no change compared with the fourth quarter, however. The Consumer Sentiment Index (University of Michigan) was 76.0 in March, compared to 68.2 in December and 87.7 last March.
 -- Housing -- Single-family housing starts in the first quarter were at an annual rate of 1.07 million, up 16.4 percent from the fourth quarter and up 46 percent versus first quarter 1991. Multi- family starts, at a 202,700 annual rate, were also 16.4 percent ahead of the fourth quarter, but only 6.3 percent above the first quarter of 1991. Existing home resales in March were 9.7 percent higher than March of 1991, and 8.1 percent above the fourth quarter average. March's median price of $104,000 was 5.4 percent higher than last March. New home sales in February were 25 percent higher than last February and 10 percent better than the fourth quarter average. The median price of $117,000 was 2.4 percent lower than in February of 1991. Importantly, the inventory of new homes for sale fell to a very low 5.2 months, compared with 7.9 percent last February.
 -- Industrial Production -- The first quarter inventory correction pushed manufacturing output down at a 4.4 percent annual rate in the first quarter, compared to the fourth quarter, but it was still 1.0 percent above the first quarter of 1991. The annualized assembly rate for autos was 5.2 million in the quarter, which was 13 percent below the annual rate of auto sales during those three months. The Capacity Utilization rate was 78.1 percent in March, compared with 78.7 percent in December and 78.4 percent in March 1991.
 -- Trade Deficit -- The monthly average merchandise trade deficit for January/February was $4.7 billion, a 14.5 percent improvement from the fourth quarter and 27 percent better than the $6.5 billion average for those same two months last year. Merchandise exports in February were up 7.7 percent year to year, while imports grew by only 2.2 percent.
 -- U.S. Dollar -- In March, the dollar was 4.7 percent higher than December and 1.9 percent above March 1991 when compared with a weighted average of major trading partners. Compared with the German mark, the dollar ended March at 1.64, up 7.9 percent from December, but still 3.4 percent below the end of March 1991. Against the yen, March's month end value was 132.8, up 6.4 percent from year end, but 5.6 percent less than at month end last March.
 -- Oil Prices -- West Texas Crude was priced at $19.25 per barrel at the end of March, compared with $18.65 at year end, up 3.2 percent. The month-end price last March was $19.65, resulting in a year-to-year decline of 2.0 percent. The end of March 1the end of March, compared with 6.5 percent at year end and 9.0 percent in March 1991. Ninety-day Treasury Bills averaged 4.05 percent in March, compared with 4.12 percent in December and 5.91 percent in March 1991 (discount rate basis). Thirty-year Treasury Bonds averaged 7.97 percent in March, compared with 7.70 percent in December and 8.29 percent in March 1991. Mortgage rates averaged 8.94 percent in March, compared with 8.50 percent in December and 9.50 percent in March 1991. High-quality, long-term municipal bonds averaged 6.76 percent in March, compared with 6.69 percent in December and 7.10 percent in March 1991.
 First Union Corporation (NYSE:FTU and FTUpr), which reported $48.1 billion in assets as of March 31, 1992, operates 1,018 banking offices in Florida, North Carolina, South Carolina, Georgia and one banking office in Tennessee, and 207 nonbanking offices in 36 states.
 -0- 4/28/92
 /CONTACT: Sandy Deem, First Union Corporation, 704-374-2710 or 704-567-1176, home/
 (FTU FTUpr) CO: First Union Corporation ST: North Carolina IN: FIN SU: ECO


DF -- CH006 -- 3833 04/28/92 13:03 EDT
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Date:Apr 28, 1992
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