Rapid rise of U.S. economy 'stunning'
By Neil Irwin
Washington Post
WASHINGTON — The U.S. economy surged in the third quarter, growing even faster than originally thought, according to government data released yesterday that bolster hopes for a sustained recovery in 2004.
The nation's gross domestic product grew at an annual rate of 8.2 percent in the three months ended Sept. 30, the fastest pace since 1984, the Commerce Department reported. That was a percentage point higher than the government's previous estimate, made last month, that the economy grew at a 7.2 percent pace, itself a remarkable rate.
"It's even more stunning than we thought," said Mark Zandi, chief economist at consulting firm Economy.com Inc.
Temporary boosts such as the income tax cuts and a mortgage refinancing boom helped spur the expansion. Economists cautioned that growth in the nation's economic output will probably slow to a more modest but healthy pace of around 4 percent in the fourth quarter and into 2004.
But factoring out those one-time boosts, yesterday's report provides evidence that the underlying economy is solidly expanding.
Businesses invested 18.4 percent more on equipment and software in the third quarter than they did in the second, suggesting that corporate executives have greater confidence in the economy's direction. The Commerce Department originally estimated a 15.4 percent rise.
Moreover, companies trimmed their inventories less than was earlier estimated, which some analysts interpret to mean that executives are sufficiently optimistic about the future that they want to keep more goods in warehouses and on store shelves to accommodate rising demand.
The report said that firms reduced inventories by $14.1 billion, compared with a $35.8 billion reduction in the original estimate.
Other analysts, however, interpreted the inventory number more negatively, arguing that with more goods held in inventory, companies will have less need to increase production in the months ahead.
In a less ambiguous sign for business, corporate profits were up 30 percent in the third quarter from a year earlier, according to yesterday's report, one of the reasons firms might be feeling more confident.
The Commerce Department said consumers spent 6.4 percent more in the third quarter than in the second, about the same as in the earlier report. It also said spending on residential building rose 22.7 percent, an increase from the 20.4 percent rise originally estimated.
"These numbers show some fundamental strength in the U.S. economy," said John Silvia, chief economist of Wachovia Corp.
More than halfway through the fourth quarter, the economy appears to be continuing to improve, if less dramatically than it did in the third quarter. Last week, the Conference Board said its index of leading economic indicators was up 0.4 percent in October.
Job creation, however, continues to lag far behind the other indicators of a firming economy.
Companies have been able to squeeze more productivity out of employees, as they often do at the beginning of a recovery, creating little enthusiasm for expanding their payrolls. During the strong growth of July, August and September, the nation gained only 103,000 jobs — far fewer than required to keep pace with population growth.
As demand for their products grows, however, companies may be forced to start hiring in large numbers, some economists say, arguing that is what happened in September and October as job growth accelerated.
"When the economy's growing at 8.2 percent, even with good productivity you've got to hire some more people," said David Wyss, chief economist of Standard & Poor's Corp.
As it prepares for an election year, the White House is counting on just that.
"America's workers continue to defy expectations, and the GDP numbers today are encouraging and they are obviously very positive," said White House spokeswoman Claire Buchan. "The president believes that we still have more work to do to help translate the economic growth into job creation."
GDP may have been revised upward, said Democratic National Committee spokesman Tony Welch, but "the number that hasn't been revised is the 3 million jobs lost under President Bush. That's what Americans feel every day in their homes, and the GDP number, while good, is not only unsustainable, it means virtually nothing to someone who's been out of work for months."
