U.S. GDP Grows at 8.2 Percent Pace in 3Q

[weatherlover427]

U.S. GDP Grows at 8.2 Percent Pace in 3Q 44 minutes ago By JEANNINE AVERSA, Associated Press Writer

WASHINGTON - The economy roared ahead at an astounding 8.2 percent annual rate in the third quarter, the fastest pace in nearly two decades and a much stronger performance than previously thought. It raises hope that a long spell of lackluster business activity is finally over.

The revised gross domestic product (GDP (news - web sites)), released by the Commerce Department (news - web sites) Tuesday, was a full percentage point higher than the 7.2 percent growth rate estimated a month ago.

The new estimate, based on more complete data, reflected stronger investment by business on new equipment and software, less severe cuts in companies' inventories and more brisk spending on residential projects.

Those were the main factors behind the upward revision to third-quarter GDP, which measures the value of all goods and services produced within the United States and is considered the broadest barometer of the country's economic health.

"I think there's a better mix of growth in this report, with capital spending being a major portion of the upward revision," said economist Ken Mayland, president of ClearView Economics. "The economy is regaining the confidence of businesses and they are stepping up to the plate and spending and investing for the future."

The 8.2 percent growth rate — more than double the 3.3 percent pace registered in the second quarter — represented the best showing since the first quarter of 1984, when the economy surged at a 9 percent pace. Economists were predicting third-quarter GDP would be revised up, with estimates ranging from a 7.3 percent pace to an 8 percent pace.

Near rock-bottom short-term interest rates and President Bush (news - web sites)'s third round of tax cuts motivated businesses and consumers to spend and invest more, helping the economy to move at such a fast clip in the third quarter, economists say. The next challenge is making sure the rebound is lasting.

The Bush administration believes the economy is poised for solid growth and stronger job creation in the months ahead. That is politically important to Bush as he heads into the 2004 campaign. Democrats, however, blame Bush for the loss of 2.3 million jobs since he took office in January 2001 and argue that the tax cuts contributed to the record 2003 budget deficit.

For out-of-work Americans, though, it probably doesn't feel like much of an economic recovery. Only recently has the battered labor market shown signs of improving. In October, the unemployment rate improved fractionally, to 6 percent, as the economy added jobs for the third straight month.

Steady improvements in job creation and in capital investment are crucial ingredients for the economic recovery to be self sustaining, economists say.

Analysts believe the economy will grow at a slower, but still healthy rate of at least 4 percent in the current October-to-December period as some of the stimulus provided by the tax cuts and a surge in mortgage refinancing fade.

Against this backdrop, Federal Reserve (news - web sites) policy-makers are expected to hold a key short-term interest rate steady at a 45-year low of 1 percent at its next meeting on Dec. 9.

In the GDP report, consumers continued to do their part to keeping the economy going. They boosted spending in the third quarter at a 6.4 percent rate. That was up from a 3.8 pace in the second quarter, but down slightly from the 6.6 percent rate previously estimated for the third quarter.

Especially encouraging was a 18.4 percent growth rate in business investment in new equipment and software in the third quarter. That was even stronger than the 15.4 percent pace previously estimated for the quarter and up from a 8.3 percent pace in the second quarter.

Spending on residential projects grew at a whopping 22.7 percent pace in the third quarter, also better than the sizable 20.4 percent growth rate first estimated and up from a 6.6 percent pace in the second quarter.

Fewer cuts to business inventories in the third quarter resulted in a 0.16 percentage-point increase to GDP in that three-month period, compared with a 0.67 percentage-point reduction to GDP as previously estimated.

Another factor in the upward revision to GDP in the third quarter: Slightly stronger spending by state and local governments. These governmental bodies boosted spending at a 2.3 percent pace, up from a 1.3 percent growth rate previously estimated.

[stormchazer]

C'mon...where is all the post about the terrible economy?! Thanks Joshua! :usa

[JCT777]

The economy must be doing OK. I was at the King of Prussia mall last Saturday and it was very, very busy there!

[weatherlover427]

I think we've tanked those for now, Jara. Looks like things are turning for the better.

[JTD]

Mr. Greenspan is undoubtedly thinking to himself: Time to raise interest rates. The economy is once again over-heating.

[rainstorm]

great news!!

[ColdFront77]

The 1% increase of the GDP from 7.2% to 8.2% for the third quarter is a 12.2% rise.

[looks like rain]

perhaps the biggest "hole" in those "inflated" numbers are where are the newly created job stats. something is still terribly wrong when the jobs no.s a factored in-we are not seeing a turnaround here-alot of fluff(cotton candy) and not enough stuff(meat and potatoes). sounds like some creative election mathematics if you ask me!!!---pete---

[mf_dolphin]

The meat and potatoes jobs are always the last numbers to turn around in a recovering economy. Unfortunately that's just the way it is and has always been if you look back at other ecomonic turnarounds.

[looks like rain]

it seems like they(meat and potatoes) are also the first to take flight!!----the nos. are hyperinflated though-remove the military sector from the equation and we still have a faltering economy--sorry to be so negative-but the whole midset behind those nos. is to keep the sheeple believing that things are getting better so they will inturn continue to spend like the wind!!! ---pete--

[stormchazer]

it seems like they(meat and potatoes) are also the first to take flight!!----the nos. are hyperinflated though-remove the military sector from the equation and we still have a faltering economy--sorry to be so negative-but the whole midset behind those nos. is to keep the sheeple believing that things are getting better so they will inturn continue to spend like the wind!!! ---pete--

I think you need a class in economics and the capital market cycle.

Why are people employed? To provide a service, fullfill demandor provide manufacturering.

Poor economy? Reduced demand and slowdown of all services and manufacturering due to reduce capital. Business do not hire because demand does not require higher output.

Improving economy? Business revenue begins to increase along with demand for output. (Increase in GDP)

Recovery? As demand increases the need for output overcomes the personnel available, thus companies higher more workers. The job numbers are the last to improve. If you noticed, the new unemployment request have declined the last 3 periods.

...or..

THE PHASES OF THE BUSINESS CYCLE

Economists have certain ways of labeling the business cycle. The business cycle may be defined as the changes that occur to the real GDP because of alternating periods of expansion and contraction. The phases are:

1. Recession. A decline in the real GDP that occurs for at least two or more quarters. Recessions feed on themselves. During a recession, business people spend less than they once did. Because sales are failing, businesses do what they can to reduce their spending. They lay off workers, buy less merchandise, and postpone plans to expand. When this happens, business suppliers do what they can to protect themselves. They too lay off workers and reduce spending.

As workers earn less, they spend less, and business income and profits decline still more. Businesses spend even less than before and lay off still more workers. The economy continues to slide.

2. Low Point, or Depression. State of the economy where there are large unemployment rates, a decline in annual income, and overproduction. The time at which the real GDP stops its decline and starts expanding; the lowest point. Sooner or later, the recession will reach the bottom of the business cycle. How long the cycle will remain at this low point varies from a matter of weeks to many months. During some depressions, such as the one in the 1930s, the low point has lasted for years.

3. Expansion and Recovery. A period in which the real GDP grows; recovery from a recession. When business begins to improve a bit, firms will hire a few more workers and increase their orders of materials from their suppliers. Increased orders lead other firms to increase production and rehire workers. More employment leads to more consumer spending, further business activity, and still more jobs. Economists describe this upturn in the business cycle as a period of expansion and recovery.

4. Peak. The point at which the real GDP stops increasing and begins its decline; the highest point. At the top, or peak, of the business cycle, business expansion ends its upward climb. Employment, consumer spending, and production hit their highest levels. A peak, like a depression, can last for a short or long period of time. When the peak lasts for a long time, we are in a period of prosperity.

One of the dangers of peak periods is that of inflation. During periods of inflation, prices rise and the value of money declines. Inflation is more of a threat during peak periods because employment and earnings are at high levels. With more money in their pockets, people are willing to spend more than before. In this way, demand is increased and prices rise.


This is a very simplistic example but maybe you learned something.

[janswizard]

They may say we are recovering but as someone who works in retail, I've seen too many people try credit card after credit card to pay for a purchase and still get declines on their cards. In turn, they decide to pay by check, tieing up inventory while we wait for the check to be received, and then the orders are then cancelled because the checks aren't received. My company isn't meeting expectations and we are at the height of the season. I'd like to believe we have seen a turnaround but I'm still wary.

[weatherlover427]

I'd say wait till a couple weeks after Thanksgiving. Things should hopefully be kicking by then.

[coriolis]

Isn't this a replay of what Pres. Reagan did. Cut taxes against the conventional wisdom, and increase military spending? During Reagan's second term, there was an unprecedented period of growth.

[weatherlover427]

If so, then I can only imagine what might happen...

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