Economy Expands at Fastest Clip Since 1984
The American economy grew even faster in the third quarter than the government first thought, thanks to fresh evidence that business was finally opening its pocketbook.
The Commerce Department said Tuesday that growth of the gross domestic product was a robust 8.2% from July through September -- a percentage point, or about $24 billion, greater than it had estimated last month. It was the most robust quarterly expansion since 1984.
The department attributed most of the increase in the nation’s total output of goods and services to a substantial jump in business spending.
The impressive growth and other upbeat economic news are having a bracing effect on President Bush’s political prospects. Administration officials who only a few months ago could barely bring themselves to comment on the economy raced to claim credit. The president touted this summer’s tax refund checks.
“This economy of ours is reacting to our policy,” he declared Tuesday during a political fundraiser in Las Vegas. “The tax relief we passed is working.”
Democratic presidential candidate Howard Dean criticized the president’s economic record and what he called his “reckless and irresponsible tax cuts and record-setting levels of debt.”
“It is going to take more than one quarter of growth to dig this country out of this hole,” Dean said Tuesday.
The biggest news in the GDP numbers seemed to be that corporate America, which has been portrayed as hunkered down and cautious about expanding, is actually flush with cash and ready to invest -- at least in computers and software.
Business investment grew at an annualized rate of 14% during the July-through-September quarter, the department said, better than the 11.1% rate the government initially estimated. Equipment and software investment climbed at an 18.4% pace, its best showing in five years.
The buying binge was fueled by corporate profits, which the government said grew at an annual pace of more than 30%.
“The profit numbers are absolutely astounding,” said Ken Mayland, president of ClearView Economics, a forecasting firm in Pepper Pike, Ohio.
The new, higher growth figures heightened the mystery over why U.S. employers haven’t been hiring more. In the same three months the economy was growing briskly this summer and early fall, nonfarm payrolls expanded by only 160,000, or about half the number added in a single month during a typical recovery.
But at least the trend was up, and analysts cited further evidence Tuesday of job growth. In a separate report, the Conference Board, a business research group, said its consumer confidence index unexpectedly jumped 10 points this month to 91.7, largely because people were finding it easier to land jobs.
“What we’re seeing is that a turnaround in the labor market is having a positive impact on consumers’ assessment of their present situation,” said Lynn Franco, the New York-based group’s research director.
Job seekers were hardly excited, according to a Conference Board survey. But the fraction who reported it was “hard to get” work dropped to 29.5% this month from 33.7% in October, a substantial improvement.
In a separate show of economic strength Tuesday, the National Assn. of Realtors reported that sales of existing homes slowed somewhat in October but still ran at the third-highest pace on record despite an increase in mortgage interest rates. Americans bought homes at an annual pace of 6.35 million units, down 4.5% from September’s record rate of 6.68 million.
Despite the drumbeat of good news, both the stock and bond markets were subdued Tuesday.
The Dow Jones industrial average edged up 16.15 points, or 0.2%, to 9,763.94. The broader Standard & Poor’s 500 index rose 1.81 points, or 0.2%, to 1,053.89.
In the bond market, the price of the 10-year Treasury note rose as traders concluded that inflation remained subdued.
Economists especially savored the latest GDP figures because they showed that business investment played a much bigger role in boosting the latest quarter’s growth. Economists generally believe that investment is better than consumption because it means the economy has not only produced more but expanded its ability to produce in the future.
Commerce officials said consumer spending grew at a 6.4% rate in the quarter, less than the 6.6% they originally estimated.
“The new numbers show we had an economy basically firing on all cylinders, instead of just one or two as it has the last few years,” said Mat Johnson, chief economist with Quantit Economic Group in San Francisco.
Few think the economy can match its performance of last quarter. Many experts say recent retail figures suggest consumers are finally beginning to rein in their purchases. A report Tuesday by Redbook Research, for example, said U.S. retail sales were down 2.9% in the first three weeks of November compared with a similar period in October.
The big questions now are whether business spending can take up some of the slack and whether employers will begin hiring again with vigor.
Analysts said that based on Tuesday’s report, the answer to the first question was yes. The answer to the second could come next week when the U.S. reports November’s employment and unemployment totals.
Times staff writer Maura Reynolds in Las Vegas contributed to this report.
