US Economy Grew at a Strong 3.8% Rate in 3rd Quarter

The economy picked up speed in the third quarter, the government
reported this morning, as consumers encouraged by heavy discounts
splurged on cars and trucks and all manner of other goods.

The gross domestic product rose at an annual pace of 3.8 percent from
July to September, up from 3.3 percent in the second quarter.
Consumers and the government spent more than they did earlier this
year, making up for weaker investment by businesses.

Economists were expecting the economy to grow at a 3.6 percent pace,
according to a survey by Bloomberg News.

"This is actually fairly amazing given all the uncertainty engendered
by the effect of the hurricanes on September data that has yet to be
reported," Joshua Shapiro, chief United States economist for MFR Inc.,
said in a research note to clients.

Personal consumption was up 3.9 percent and contributed about 2.73
percentage points of the GDP growth rate. Auto purchases contributed
0.62 percentage points and furniture and household equipment buying,
which appears to be fueled in part by the roaring housing market this
summer, chipped in 0.35 points.

The increases in spending came even as disposable personal income
growth slowed to 2.8 percent from 4.9 percent. Adjusted for inflation,
disposable income fell 0.9 percent after increasing 1.5 percent in the
second quarter. Some of the drop was attributable to lost rental and
business income on the Gulf Coast after Hurricanes Katrina and Rita
lashed the region.

The GDP price index, a measure of inflation, rose 3.1 percent, up from
2.6 percent in the second quarter.

The personal saving rate fell into negative territory, minus 1.1
percent, from 0.1 percent. That indicates that people were paying for
their increased spending by borrowing more money.

As for businesses, fixed investments slowed to a 5.7 percent annual
growth rate, down from 9.5 percent in the second quarter. Export
growth also flattened out to 0.8 percent after a robust 10.7 percent
jump in the second quarter. Imports, which are a statistical drag on
the GDP, were unchanged in the quarter.

The strong GDP report and the rising inflation provide yet another
indication that the Federal Reserve will continue raising its
benchmark short-term interest rates, now at 3.75 percent, when it
meets again on Tuesday, economists said.

www.nytimes.com