U.S. economy reaches 3.1 percent growth
| • | Indicators positive for state's economy |
By John M. Berry
Washington Post
The U.S. economy grew at a 3.1 percent annual rate in the July-September period — more than double the second quarter's pace — primarily because of a surge in consumer spending for motor vehicles generated by renewed offers of zero-rate financing, the Commerce Department reported yesterday.
The latest increase in the inflation-adjusted gross domestic product, a broad measure of the nation's production of goods and services, meant the economy grew 3 percent during the last 12 months. But that has done little
to cut into the joblessness created by last year's recession. Unemployment in September was at 5.6 percent, compared with 5 percent in September 2001. The October figure will be out today.
In addition, many analysts said most of the third-quarter GDP gain came early in the period, and that the economy has softened since then. Many forecasters are predicting growth at a annual rate of 1 to 2 percent in the final three months of the year. One forecasting firm, Macroeconomic Advisers in St. Louis, expects a 0.5 percent annual rate in the fourth quarter.
Bruce Steinberg, chief economist for Merrill Lynch & Co. in New York, said the 3.1 percent annual growth rate during the summer is "likely to be the high-water mark on growth for the next couple of quarters.
"Fourth-quarter GDP appears to be growing at around a 1.5 percent rate, and we expect first-quarter growth to also be sluggish," Steinberg said. "Once recent financial market shocks begin to fade and the conflict with Iraq is past, we expect growth to ramp up again in the spring."
Bill Cheney, chief economist for John Hancock Financial Services in Boston, agreed that fourth-quarter growth is likely to be slow, but said growth should improve next year.
"It's like being caught in heavy traffic: We're moving forward and eventually we'll get where we want to be, but it's maddeningly slow getting there," Cheney said.
Given such forecasts of slower growth and major uncertainty about a possible war with Iraq, which appears to be affecting both consumer and business confidence, many analysts expect the Federal Reserve to lower its target for overnight interest rate when policy-makers meet Wednesday. Analysts are divided over whether the reduction in the already low 1.75 percent target would be a quarter or half percentage point.
More than half the third-quarter GDP gain was due to increased consumer spending on durable goods, primarily new cars and light trucks. Vehicles sales have dropped since August, and Steinberg and other analysts predict they will be a drag on GDP this quarter.
Business spending on new equipment and software rose at a 6.5 percent annual rate, double the weak second-quarter increase.
Nevertheless, such spending fell very sharply during the recession and remains far below its level in 2000. Even last quarter, that small gain was offset by a drop in spending for new business structures and for inventories.
