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  • U.S. economy on a tear

    U.S. economy on a tear

    Third-quarter growth of 7.2 percent is strongest in nearly two decades; will job growth follow?
    October 30, 2003: 2:26 PM EST
    By Mark Gongloff, CNN/Money Staff Writer



    NEW YORK (CNN/Money) - U.S. economic growth surged in the third quarter of 2003 to the fastest pace in nearly two decades, the government said Thursday, in a report that was much stronger than most economists expected.

    Gross domestic product (GDP), the broadest measure of economic activity, grew at a 7.2 percent annual rate in the quarter after growing at a 3.3 percent rate in the second quarter, the Commerce Department reported. Economists, on average, expected GDP growth of 6 percent, according to Briefing.com.

    "This is obviously an extraordinarily strong report, led by the consumer, but also with good signs about the state of the business sector and business confidence," said Lehman Brothers economist Drew Matus.

    The burst of GDP growth was led by a 6.6 percent growth rate in consumer spending, the fastest pace since the third quarter of 1997. Consumer spending grew at a 3.8 percent pace in the second quarter.

    Child tax credit checks and lower rates of income tax withholding helped fuel the third-quarter spending surge, enabling the Bush administration -- which pushed for tax cuts earlier this year -- to take a victory lap Thursday morning.

    "The tax relief we passed is working. We left more money in the hands of the American people and the American people are moving this economy forward," Bush said at a speech in Columbus, Ohio, adding "We cannot expect economic growth numbers like this every quarter."

    Still few jobs
    Though earlier this month Treasury Secretary John Snow predicted that new jobs were soon to be added at the rate of 200,000 per month, other White House officials on Thursday were quick to note that the economy's recent burst of energy had yet to create many jobs.

    "We need to continue to act to build upon the steps we have taken to get our economy growing so we can continue to translate growth into job creation," said White House spokesman Scott McClellan, according to a Reuters report.

    The Labor Department, in a separate report Thursday, said new weekly claims for unemployment benefits were still relatively high in the week ending Oct. 25.

    In fact, during a quarter with the strongest growth rate since 1984, total employment fell by 165,000 jobs, according to Labor Department statistics, in part because of strong productivity growth, which enables companies to get more work out of fewer workers.

    But most economists hope that continued strong demand will eventually catch up with the recent gains in productivity and lead to sustained job growth.

    "The good news for workers is that productivity growth cannot continue at this pace. Demand will translate into jobs very soon, and in fact I think it's happening right now," said Bill Cheney, chief economist at John Hancock Financial Services in Boston.

    "But that's still largely a hope, not a certainty," Cheney added

    The impact of inventories
    Many economists expect the impact of the tax cuts to fade in the fourth quarter, and the cash flow from mortgage refinancings, another boon to third-quarter economic growth, is expected to diminish as well. As a result, most economists expect a slower pace of GDP growth, about 4 percent, in the fourth quarter.

    A decline in business inventories in the third quarter, however, could mean GDP will get a boost in the fourth quarter, if and when businesses re-stock their shelves.

    "The plunge in inventory accumulation does suggest that firms are not confident enough to add merchandise to their shelves," said Anthony Chan, chief economist at Banc One Investment Advisors. "But they will not be able to do this indefinitely because everyone knows that sporting empty shelves in a rising growth environment is not prudent."

    Without the decline in inventories, final sales rose at a 7.8 percent pace in the third quarter, the strongest rate since the second quarter of 1978, when final sales were rose at a 16.7 percent rate.

    Cars, homes lead the charge
    Much of the strength in consumer spending in the third quarter was in durable goods, items meant to last three years or more, and much of that strength was in sales of motor vehicles and parts, which alone contributed 1.17 percentage points to the total pace of GDP growth.

    Record home sales also contributed to GDP growth in the quarter; residential investment boomed to a 20.4 percent annual pace, compared with 6.6 percent in the second quarter.

    Nonresidential fixed investment rose at a 11.1-percent annual rate, following the second quarter's 7.3 percent pace, a sign of continuing strength in business spending. Investment in equipment and software rose at a 15.4 percent pace, the strongest rate since the first quarter of 2000, compared with 8.3 percent in the second quarter.

    Weakness in imports -- which subtract from GDP, since they represent goods and services bought from other nations -- also helped total GDP growth. Imports grew at just a 0.1 percent pace in the quarter, while exports surged at a 9.3 percent growth rate.

    Government spending, which contributed mightily to the second quarter's growth rate, slowed down. Defense spending, which grew at a 45.8 percent pace in the second quarter, driven by spending on the war in Iraq, was flat in the third quarter.

    The personal consumption expenditure price deflator, an inflation measure closely watched by the Federal Reserve, rose to 1.7 percent from 1.0 percent in the second quarter.

    The Fed recently left its target for its key short-term interest rate unchanged at levels not seen consistently since 1958, saying the recent surge in economic growth had not changed its outlook for inflation. The Fed has maintained for several months that it is worried about inflation getting too low, which could hurt corporate profits and economic growth.

    "We believe that the Fed will require both consistent solid hiring and a rise in inflation before it begins to lift rates," said UBS Warburg chief economist Maury Harris.

    http://money.cnn.com/2003/10/30/news.../gdp/index.htm
    "Every man has his weakness. Mine was always just cigarettes."

  • #2
    Government spending, which contributed mightily to the second quarter's growth rate, slowed down. Defense spending, which grew at a 45.8 percent pace in the second quarter, driven by spending on the war in Iraq, was flat in the third quarter.
    The Government spending money has a lot less to do with economic growth then this moron thinks. Only people that create new buisnesses and expand exsisting ones can cause economic growth. All the Government can do is hurt the economy.

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    • #3
      It's CNN, *ahem* Ted Turner, What did you expect?

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      • #4
        Originally posted by Praxus
        The Government spending money has a lot less to do with economic growth then this moron thinks. Only people that create new buisnesses and expand exsisting ones can cause economic growth. All the Government can do is hurt the economy.
        ... ok, you do know the government is people right?

        Whilst generally I agree that the private sector is more efficient than the public sector, there are some things that the gov't has to do. Defence for example.

        And I'm pretty sick of you insulting people who disagree with you. Wow, he is less of a capitalist than you. That must make him an ignorant moron, who obviously never finished that college degree that got him that job at the obviously retarded Cable News Network.
        SWANSEA 'TILL I DIE! - CARN THE CROWS!

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        Staff Cadet in the Australian Army Reserve.

        Soli Deo Gloria

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        • #5
          And I'm pretty sick of you insulting people who disagree with you. Wow, he is less of a capitalist than you. That must make him an ignorant moron, who obviously never finished that college degree that got him that job at the obviously retarded Cable News Network.
          Please refrain from insulting Gio.

          I'm sick of you ranting about your blind faith about a probley none exsistent God. So how about you calm down and stop rejecting reason and science for irrational mysticism.

          ... ok, you do know the government is people right?

          Whilst generally I agree that the private sector is more efficient than the public sector, there are some things that the gov't has to do. Defence for example.
          . Defense spending is of course HIGHLY nessecary but it does not help the economy because nothing more is happening then the Government takes your money and gives it back to another group of people. There is no mutual exchange of goods/services/money here.
          Last edited by Praxus; 05 Nov 03,, 01:52.

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