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Economy Surges in Third Quarter, Spending Soars
28 minutes ago Add Business - Reuters to My Yahoo!
By Glenn Somerville
WASHINGTON (Reuters) - Robust business and consumer spending powered the U.S. economy ahead at an even brisker clip in the third quarter than first thought, the government said on Tuesday in a report that also showed the biggest corporate profits jump in more than a decade.
Gross domestic product, or GDP (news - web sites), shot up at an 8.2 percent annual rate, more than double the second quarter's 3.3 percent gain and the strongest quarterly advance in 19-1/2 years.
A month ago, the Commerce Department (news - web sites) said GDP grew at a 7.2 percent rate.
The 8.2 percent gain surpassed Wall Street economists' forecasts for a revision to 7.8 percent. Bond prices initially dipped on the signs of resurgent growth but steadied later.
The report pointed to a long-awaited revival in corporate investment, with nonresidential business spending surging at a 14 percent annual rate, double the second quarter's 7.3 percent and ahead of the initially reported third-quarter rise of 11.1 percent.
Analysts said this number was especially heartening.
"This is a red hot economy," said economist Patrick Fearon of A.G. Edwards and Sons Inc. in St. Louis, Missouri. "It looks like a lot of the revision came in investments, which is a positive sign because that had been an area of real weakness for a while."
The department sharply revised its estimate of inventory reductions, saying stocks of unsold goods fell by $14.1 billion in the quarter instead of the $35.8 billion drop it originally reported.
Consumer spending, bolstered by tax cuts, grew at a revised 6.4 percent annual pace in the third quarter, below the 6.6 percent pace estimated a month ago but well ahead of the second quarter's 3.8 percent growth rate.
Most forecasters say the third-quarter jump in GDP is unlikely to be matched in coming quarters as the impact of this year's tax cuts wanes but they still foresee growth in a range of about 4 percent for the balance of this year and into 2004.
Economist Ken Mayland of Clearview Economics LLC in Pepper Pike, Ohio, said the report showed a better balance in growth that was promising for continued healthy expansion.
"The next phase of economic recovery has to be reinforced by capital spending ... here we have some very strong evidence that businesses loosened up on the purse strings: a real sign of confidence in the economy," Mayland said.
Corporate profits after tax climbed at a 10.6 percent annual rate during the quarter, a sharp change from the second quarter's 5 percent contraction. Commerce said it was the strongest pickup in profits since a 12.4 percent jump in the fourth quarter of 1992.
Fed officials have said firmer corporate profits are vital to sustained growth, not only because they bolster confidence but also because they provide the means and incentive for companies to hire new workers and add to production capacity.
Commerce will issue a final estimate of the quarterly growth data next month.
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28 minutes ago Add Business - Reuters to My Yahoo!
By Glenn Somerville
WASHINGTON (Reuters) - Robust business and consumer spending powered the U.S. economy ahead at an even brisker clip in the third quarter than first thought, the government said on Tuesday in a report that also showed the biggest corporate profits jump in more than a decade.
Gross domestic product, or GDP (news - web sites), shot up at an 8.2 percent annual rate, more than double the second quarter's 3.3 percent gain and the strongest quarterly advance in 19-1/2 years.
A month ago, the Commerce Department (news - web sites) said GDP grew at a 7.2 percent rate.
The 8.2 percent gain surpassed Wall Street economists' forecasts for a revision to 7.8 percent. Bond prices initially dipped on the signs of resurgent growth but steadied later.
The report pointed to a long-awaited revival in corporate investment, with nonresidential business spending surging at a 14 percent annual rate, double the second quarter's 7.3 percent and ahead of the initially reported third-quarter rise of 11.1 percent.
Analysts said this number was especially heartening.
"This is a red hot economy," said economist Patrick Fearon of A.G. Edwards and Sons Inc. in St. Louis, Missouri. "It looks like a lot of the revision came in investments, which is a positive sign because that had been an area of real weakness for a while."
The department sharply revised its estimate of inventory reductions, saying stocks of unsold goods fell by $14.1 billion in the quarter instead of the $35.8 billion drop it originally reported.
Consumer spending, bolstered by tax cuts, grew at a revised 6.4 percent annual pace in the third quarter, below the 6.6 percent pace estimated a month ago but well ahead of the second quarter's 3.8 percent growth rate.
Most forecasters say the third-quarter jump in GDP is unlikely to be matched in coming quarters as the impact of this year's tax cuts wanes but they still foresee growth in a range of about 4 percent for the balance of this year and into 2004.
Economist Ken Mayland of Clearview Economics LLC in Pepper Pike, Ohio, said the report showed a better balance in growth that was promising for continued healthy expansion.
"The next phase of economic recovery has to be reinforced by capital spending ... here we have some very strong evidence that businesses loosened up on the purse strings: a real sign of confidence in the economy," Mayland said.
Corporate profits after tax climbed at a 10.6 percent annual rate during the quarter, a sharp change from the second quarter's 5 percent contraction. Commerce said it was the strongest pickup in profits since a 12.4 percent jump in the fourth quarter of 1992.
Fed officials have said firmer corporate profits are vital to sustained growth, not only because they bolster confidence but also because they provide the means and incentive for companies to hire new workers and add to production capacity.
Commerce will issue a final estimate of the quarterly growth data next month.
link