Consumer, Business Spending Revised Up

From Bloomberg News

Consumer and business spending grew more than previously estimated in the second quarter and claims for jobless benefits dropped more than expected last week, evidence that the economy was solid before the recent hurricanes and already might be starting to overcome their effects.

Also, the Congressional Budget Office said Thursday that the harm to the U.S. economy from hurricanes Katrina and Rita would be more modest than previously estimated.

The office said the hurricanes would cut U.S. economic growth by half a percentage point in 2005, with growth returning to its previous trend by early 2006. In early September, the government arm estimated that Hurricane Katrina could slow economic growth in the second half of the year by a one-half to 1 percentage point.

Gross domestic product expanded at a 3.3% annual rate from April through June, the Commerce Department said. Although that pace was unchanged from the government’s estimate a month ago, consumer spending and business investment were revised higher.


The growth report also showed that prices rose more than previously estimated as demand grew. Strong spending and the quick drop in jobless claims suggest that Federal Reserve policymakers may be right in predicting only a temporary slowdown, economists said.

First-time claims for unemployment benefits fell by 79,000 to 356,000, the Labor Department said Thursday, and filings excluding workers displaced by Hurricane Katrina were the lowest since June 2000.

The reports “are consistent with the chatter coming from the Fed that the economy is in good shape and can weather the hurricanes,” said Ethan Harris, chief U.S. economist at Lehman Bros. Inc. “We’re already seeing a tremendous amount of money going into recovery efforts in the Gulf [Coast], and that means things may look better as early as the fourth quarter.”

Consumer spending, which accounts for more than two-thirds of the economy, expanded at a 3.4% annual pace in the second quarter, compared with the 3% estimated last month and a 3.5% rise in the first quarter, the Commerce Department report showed. The GDP price index, a measure of inflation, rose at a 2.6% annual rate, faster than the 2.4% increase the government had estimated.


About 60,000 claims last week came from people who lost their jobs because of Katrina, down from 108,000 the week before, a Labor Department spokesman said. Subtracting those filings and adjusting for seasonal factors, claims last week would have been 281,000, the lowest since June 2000, according to Morgan Stanley.

“Outside the Katrina-related effects, the job market seems to be holding up right now,” said Tony Crescenzi, chief bond market strategist at Miller Tabak & Co. in New York.

Last week’s claims report may have been lower than expected because the arrival of Hurricane Rita kept some people from applying for benefits, said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y.

Reuters was used in compiling this report.