The Black Box

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Consumers Fuel Faster Economic Growth

(I'm posting this just to balance all the "bad" news that gets posted here <g>)

25 minutes ago Business - Reuters

By Glenn Somerville

WASHINGTON (Reuters) - Robust consumer spending on cars, furniture and food helped the U.S. economy advance faster than first thought in the third quarter, a government report showed, while underlying inflation was the tamest in decades.

The Commerce Department (news - web sites) said on Tuesday gross domestic product, the measure of all goods and services produced within U.S. borders, grew at a 3.9 percent annual pace in the three months from July through September, up from 3.7 percent estimated a month ago.

This was the second of three government estimates for quarterly GDP (news - web sites) and beat Wall Street economists' predictions that the third-quarter advance would be unchanged from the first snapshot at 3.7 percent.

The gain marked the sixth successive quarter GDP has expanded at a rate exceeding 3 percent, implying healthy and sustainable growth.

Consumers ratcheted up spending at a 5.1 percent annual pace, more than three times the 1.6 percent rate in the second quarter and the strongest since a 7 percent surge in the fourth quarter of 2001. Consumer spending accounts for more than two-thirds of the $11-trillion U.S. economy.

MORE RATE RISES LOOM

Analysts said the GDP report was a reassuring sign that growth was on a safe track and added that it gave the Federal Reserve (news - web sites) leeway to keep raising interest rates without fear of choking off growth.

"Really the economy seems to be running at a 4 percent growth rate and that is what this number is pointing out," said Tim Mazanec, a currency strategist with Investors Bank and Trust in Boston. "This should not persuade the Fed to change their measured rate-hike moves."

Inflation data within the GDP report suggested the Fed has little to fear from price pressures.

A key price gauge favored by Fed Chairman Alan Greenspan (news - web sites) -- the personal consumption expenditure index excluding food and energy costs -- rose at a mild 0.7 percent rate in the third quarter, the smallest pickup since a 0.5 percent gain in the fourth quarter of 1962.

U.S. central bank policy-makers next meet Dec. 14 to mull interest-rate strategy. They have lifted short-term borrowing costs at each of their last four gatherings and many economists expect another increase from a still-low 2 percent federal funds rate to come in December.

The relatively strong GDP number initially helped the battered dollar regain some ground against the euro, while bond prices slipped on expectation of more Fed interest rate rises.

The Commerce Department said damage wreaked by four major hurricanes cut some $80 billion from U.S. corporate profits in the third quarter. After tax, profits fell 2.0 percent in the period, after slipping 0.7 percent in the second.

Business spending on capital equipment remained vigorous, with nonresidential investment -- seen as a proxy for overall corporate investing -- accelerating to a 12.9 percent rate of advance from 12.5 percent in the second quarter.

Equipment and software spending, associated with rising productivity since it involves upgrading computers and increased automation, shot up at a 17.2 percent rate.

Companies added to inventories at $35.9-billion annual rate during the third quarter, down from $61.1 billion in the second quarter. Analysts welcomed this since lean inventories mean less overhang of unsold goods to rein in future production.

"In general, it shows the overall core part of the economy was stronger than we thought initially," said economist Jay Bryson of Wachovia Securities in Charlotte, N.C.

http://story.news.yahoo.com/news?tmpl=story&cid=580&e=1&u=/nm/20041130/bs_nm/economy_dc