U.S. Economy Grew 7.2% in 3Q, Fastest Pace in 20 Years
By Deborah Lagomarsino
WASHINGTON -- The U.S. economy roared ahead in the third quarter, growing at its fastest pace in nearly 20 years, fueled by greater consumer and business spending.
Third-quarter gross domestic product, a measure of all the goods and services produced in the U.S., rose at a sizzling 7.2% annual rate, more than double the 3.3% rate in the second quarter, the Commerce Department said Thursday. The economy grew at a 1.4% pace in the first quarter.
The third-quarter growth pace was the fastest since the first quarter of 1984, when the economy grew at a heady 9% pace.
The third-quarter growth figures came in much stronger than Wall Street forecasts. A Dow Jones-CNBC survey of economists forecast growth at 6.1% in the third quarter.
Economists had expected consumer spending to surge in the third quarter, boosted by tax cuts that went into effect that quarter. The overall economy is expected to cool down in coming months as the impact of those tax cuts fade.
Top analysts surveyed in the latest Blue Chip Economic Indicators Poll expect the economy to moderate to a 3.7% pace in the fourth quarter and maintain that pace in the first quarter of 2004.
Even though the economy is growing at a very brisk clip, the Federal Reserve this week said it intends to keep rates low for a "considerable period." The Fed on Tuesday left its key interest rate at a 45-year low, saying the low rate will sustain the recovery.
Most economists don't expect the U.S. economy to strengthen enough to spur the Fed to start raising rates until the middle of next year at the earliest. Some predict the Fed will stay on the sidelines through 2004.
The GDP report showed a marked pickup in consumer and business spending. Business spending had fallen for most of the past two years and was the main reason the U.S. slipped into recession in 2001.
Consumer spending, as measured by personal consumption expenditures, rose at a 6.6% pace in the third quarter, its fastest pace since the first quarter of 1988. Consumer spending climbed at a 3.8% pace in the second quarter. Consumer spending, which accounts for two-thirds of economic growth, grew at a 2% annual rate in the first quarter.
Spending on durable goods, which includes autos, surged 26.9% in the third quarter, after a 24.3% gain in the second quarter. Spending on non-durable goods rose by 7.9%, up from 1.4% in the second quarter.
Business spending, or nonresidential investment, rose 11.1%, its fastest pace since the first quarter of 2000, after rising 7.3% in the second quarter. Business spending fell 4.4% in the first quarter.
Within business spending, spending on computers and equipment surged 15.4% in the third quarter, up sharply from the 8.3% rise in the second quarter. Business spending on structures declined 2.4% in the third quarter after rising 4.2% the previous quarter.
Firms continued to draw down inventories, but reduced them by a much greater amount in the third quarter than in the previous quarter, which subtracted from growth.
Business inventories fell $35.8 billion in the third quarter after falling $ 17.6 billion in the second quarter. The falloff in inventories in the third quarter knocked 0.67 percentage point off of GDP growth.
Real final sales, which is GDP less the change in private inventories, rose at a 7.8% annual rate in the third quarter, its fastest pace in more than 25 years, after rising at a 4% rate in the second quarter.
Exports surged by 9.3% in the third quarter after falling 1% in the second quarter. Imports edged up by 0.1% after rising by 8.8% in the second quarter.
Federal government spending rose 1.4% during the quarter after rising 25.5% in the second quarter. National defense spending was unchanged in the third quarter after surging 45.8% in the second quarter.
The report showed that inflation remained largely subdued. The price index for gross domestic purchases rose at a 1.9% annual rate in the third quarter, up from 0.4% in the second quarter. An upturn in energy prices accounted for most of the increase, Commerce said. The index grew at a 3.4% rate in the first quarter.
The price index for personal consumption, a measure watched closely by monetary policy makers at the Federal Reserve, rose at a 2.4% rate in the third quarter, up sharply from 0.8% in the second quarter. The index rose at a 2.7% pace in the first quarter.
-By Deborah Lagomarsino; Dow Jones Newswires; 202-862-9255; deborah.lagomarsino at dowjones.com
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