Robust growth in US economy

The United States economy grew at a lively 4,3% pace from July to September, the best showing in more than a year. The performance offers fresh testimony that the country’s overall economic health managed to improve despite the destructive force of Gulf Coast hurricanes.

The new snapshot of economic activity, released by the Commerce Department on Wednesday, shows the growth at an even faster pace than the 3,8% annual rate first reported for the July-to-September third quarter a month ago.

The upgraded performance reflects more brisk spending by consumers and businesses as well as more robust investment on residential projects than initial estimates revealed.

The third quarter’s showing marked a sizable pickup from the 3,3% increase in gross domestic product (GDP) registered in the second quarter of this year.

GDP measures the value of all goods and services produced within the US and is the best barometer of the nation’s economic standing.

The 4,3% growth rate matched the performance posted in the first quarter of 2004. The last time economic activity was higher was in the third quarter of 2003, when the GDP soared at a blistering 7,2% pace.

The upwardly revised reading for GDP in the third quarter also exceeded the expectations of business analysts.
Before the report was released, they were forecasting the economy to clock in at a 4% pace.

Consumers and businesses did their part to keep the economy rolling—even as they coped with elevated energy prices during the third quarter.

The lifeblood of the economy, consumer spending, grew at a sprightly 4,2% pace in the third quarter, stronger than the 3,9% growth rate previously estimated. The new figure marked the fastest pace in consumer spending since the final quarter of 2004.

Businesses boosted spending on equipment and software at a 10,8% annual rate in the third quarter. That was better than the 8,9% growth rate first estimated for the period and close to the 10,9% growth rate seen in the second quarter.

Investment in housing construction and other residential projects grew at a brisk 8,4% pace in the third quarter.

That was up considerably from the 4,8% growth rate initially estimated but was down from the 10,8% pace registered in the second quarter.

An inflation gauge tied to the GDP report showed prices rising at a 3,6% rate in the third quarter, slightly less than initially estimated for the period.

When food and energy prices are excluded, “core” inflation—which the Federal Reserve watches closely—actually moderated.

Core inflation rose at a rate of 1,2% in the third quarter, a tad less than first estimated and down from a 1,7% pace in the second quarter.

The good news on the economy, however, hasn’t helped President George Bush’s approval ratings in polls, which have sunk to some of the lowest levels of his presidency.

While the overall economy has weathered fallout from the hurricanes well, the labour market has felt more deeply the devastation from the storms.

Employment in September declined for the first time in two years; in October, payrolls grew by just 56 000—an anaemic performance.

When the government’s new employment report for November is released on Friday, many economists are forecasting a healthy rebound, with the economy adding more than 200 000 jobs during the month.

Federal Reserve Chairperson Alan Greenspan and his colleagues, at their November 1 meeting, said the hurricanes only “temporarily depressed” employment and production and that rebuilding efforts would energise activity going forward.

Economists believe the economy in the October-to-December quarter will grow at a pace of anywhere from more than 3% to 4%.

More worried about the prospects of inflation flaring—rather than any serious business slowdown—in the wake of the hurricanes, the Fed opted to boost interest rates in November and signalled another rate increase was likely at its next meeting, on December 13.

Katrina slammed into the Gulf Coast in late August, with Rita following in late September. Those storms, which battered crucial oil and gas facilities, choked off commerce and destroyed businesses, sent energy prices skyward and fanned inflation fears.

After Katrina, energy prices surged to record highs. Oil prices shot up past $70 a barrel in late August and gasoline prices topped $3 a gallon (3,8 litres). They have moderated since then. That’s helping to lift consumer confidence along with retailers’ hopes for a brighter holiday sales season.

Meanwhile, a measure of corporate profits tied to the GDP report showed after-tax profits falling by 3,7% in the third quarter from the prior quarter, reflecting the impact of the hurricanes. Over the year, however, profits are up a healthy 9,4%.—Sapa-AP

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