GDP Up as Expansion Nears Record

The U.S. economy sprinted to its best performance in nearly a year in the third quarter, Commerce Department figures showed Wednesday.

Gross domestic product, the sum of all goods and services produced in the U.S., rose at a 5.7% annual rate in the three months ended Sept. 30, due to upward revisions in consumer spending on services and business inventories. The pace, previously estimated at 5.5%, was the fastest since 5.9% in last year’s fourth quarter.

Analysts are forecasting a 4.7% expansion rate in this year’s final quarter, which ends a week from Friday. “The economy is going gangbusters and inflation remains muted,” said Joel L. Naroff, president of Naroff Economic Advisors Inc. in Holland, Pa.

A separate University of Michigan report Wednesday showed that consumer confidence in the U.S. economy rose to 105.4 this month, up from the preliminary reading of 104.2. That suggests rising stock values and the lowest unemployment rate in 29 years are likely to fuel additional spending gains.

Holiday retail sales are on track to meet or beat forecasts, after sales surged 7.9% last week, the Bank of Tokyo-Mitsubishi Ltd. reported this week.

The U.S. economic expansion, already the longest in peacetime, is on course to become the longest ever in February. It would surpass the 1961-1969 expansion that coincided with the Vietnam War, according to the National Bureau of Economic Research Inc., a private, nonprofit research group.

On its way to that record, the economy will probably grow in 1999 in excess of 4% for a third straight year, the best three-year performance since the late 1970s, according to Bloomberg Analytics.

“There is nothing stopping this economy,” said Richard Yamarone, senior economist at Argus Research Corp. in New York.

The consumer spending spree, even before the start of the holiday shopping season, drove most of the third-quarter GDP increase. It rose at a 4.9% annual rate, previously estimated as 4.6%, putting spending on course to increase 5.2% for all of 1999. That would be the largest annual rise since a 5.4% gain in 1984. Consumer spending accounts for two-thirds of overall economic activity.

The revision was paced by an increase in spending on brokers’ commissions and other services; it grew at a 5% pace, up from a previously estimated 4.5% rate. Spending on services is also on track to top last year’s 4% increase, the largest gain since 1988.

The GDP report offered fresh evidence that inflation stayed tame. The GDP price deflator, a measure of price increases followed by many investors, grew at a 1.1% annual pace in the third quarter, the same as previously reported. That’s lower than increases of 1.4% in the second quarter and 2% in the first.

The report comes a day after Federal Reserve policymakers signaled that they will wait until at least February to raise interest rates.

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Gross Domestic Product

Percentage change from previous quarter, annualized real rate:3rd quarter:

+5.7%

Source: Commerce Department