Economy Even Rosier at 2nd Glance : Indicators: Revision in third-quarter figures shows that gross domestic product increased at a 3.9% rate, not 3.4%.
Strong business investment and hearty consumer spending drove the economy to a brisker pace of expansion during the third quarter than was previously thought, the Commerce Department said Wednesday.
Gross domestic product, the total output of goods and services, increased at a 3.9% annual rate from July through September, up from the department’s estimate last month of 3.4% and nearly matching the second quarter’s 4.1% growth rate.
The upward revision of 0.5 percentage point was greater than economists had predicted, and with Christmas sales expected to be strong, the economy is on target for its best yearly performance since it expanded 3.9% in 1988.
The report shows that the nation’s economy is not only shrugging off the impact of this year’s interest rate increases, but is also firmly underpinned for more expansion ahead. The Federal Reserve Board has raised interest rates six times this year in a bid to keep the economy from overheating and to ward off inflation.
“Clearly, this data does not indicate that higher rates have had any meaningful impact in slowing the economy down,” said economist Sung Won Sohn of Norwest Corp. in Minneapolis. “The economy is humming along at a nice pace.”
Analysts said the central bank will probably forgo any additional moves in December and wait until policy-makers meet at the end of January before raising rates again.
“They’d like to give the economy a little while to react to the higher rates,” said Kermit Baker of Cahners Economics in Newton, Mass. “I think they’ll sit on their hands until the beginning of the new year.”
An inflation gauge tied to GDP rose a mere 1.9% at an annual rate. While that was up from the 1.6% estimate a month ago, it is still below the 2.9% increase in the second quarter.
The central bank wants to hold down inflation by slowing economic growth to about 2.5%. The economy grew at a 4.1% rate in the second quarter and a 3.3% rate in the first.
White House Press Secretary Dee Dee Myers said, “This is evidence that we continue to experience continued economic growth with low inflation.”
Wall Street took the report in stride, as the Dow Jones industrial average rallied for most of the day before closing up a fraction of a point. Bond prices were also up, pushing the yield on the key 30-year Treasury bond down to 8% from 8.03% on Tuesday.
The amount of production going into inventories was less than originally thought--leaving more room to keep assembly lines churning out goods--and inflation seemed muted, with revised price rises still below those in the second quarter.
Also, most of the upward revision in GDP from the month-old estimate was due to a surge in business purchases of equipment that usually signal higher productivity. Capital spending soared at a 14.4% rate in the third quarter, more than double the original estimate.
The department said the annual rate of growth for GDP was $50.9 billion in the third quarter, with consumer spending accounting for $28.6 billion, compared to $11.5 billion in the second quarter.
The Commerce Department also reported that after-tax profits of U.S. corporations rose 2.8% in the third quarter, compared to 7.3% the previous three months. The second-quarter figures were inflated by a recovery in California from the effects of the Northridge earthquake.
In another report, the Fed said new calculations show the nation’s industries are not operating quite as close to capacity as previously believed.
The operating rate for factories, mines and utilities in October was 84.6% of capacity, the highest since April, 1989, when the rate was 84.8%, the Fed said. Previously, the agency had put the October rate at 84.9%.
Analysts say an operating rate of about 85% can signal the start of bottlenecks and rising prices. The Fed also said that industrial production rose 0.6% in October, revised from a previous 0.7% estimate.
Gross Domestic Product
GDP mesures all goods and services produced in the United States. Percentage change from from previous quarter: 3.9%
Source: Commerce Department
