THE STATE OF THE ECONOMY

The U.S. economy fell at an annual rate of 2.6% in the first three months of 1991, reflecting weakness in virtually every corner, government figures showed Wednesday. The only bright spot--and it was not wholly encouraging--was the first trade surplus in eight years.

The Commerce Department said gross national product, the most widely watched measure of economic health, declined at a 2.6% annual rate, after adjustment for inflation, rather than at the 2.8% rate reported last month. It was the second consecutive quarterly decline--something that hasn’t occurred since the 1981-82 recession. The primary reason for the revision was new information showing a better-than-expected trade performance.

“Literally, 85% of the economy was in a tailspin,” said Allen Sinai, chief economist of Boston Co. “This report is loaded with questions for the future about how can we mount a sustainable recovery.”

One source of strength was in the trade sector, where the country recorded its first quarterly surplus on a GNP basis in eight years--$6.4 billion at an annual rate.

Even there, economists saw danger signals. The first-quarter improvement came entirely from an 11.3% drop at an annual rate in imports of goods and services as the recession cut into Americans’ appetite for foreign products.

In a separate report, the Commerce Department said the merchandise trade deficit decreased to $18.4 billion in the first quarter, the smallest imbalance in nearly eight years. Imports dropped 7.1%, while exports edged up a slight 0.2%. The merchandise trade report differs from the GNP trade report because it measures only merchandise trade and does not adjust for inflation.

GNP Revised Percent change from previous quarter. ‘91: 1st quarter (revised): -2.6% Quarterly at annual rate Source: Commerce Dept.

Trade Balance Shrinks U.S. merchandise trade balance (exports less imports) based on a balance of payments, excluding military sales. ‘91: $18.37 billion deficit Source: Commerce Dept.