ICS Magazine

Consumers Fuel Faster Economic Growth

November 30, 2004
WASHINGTON (Reuters) - Robust consumer spending on cars, furniture and food helped the U.S. economy advance faster than first thought in the third quarter, a government report showed, while underlying inflation was the tamest in decades.

The Commerce Department said on Tuesday gross domestic product, the measure of all goods and services produced within U.S. borders, grew at a 3.9 percent annual pace in the three months from July through September, up from 3.7 percent estimated a month ago.

This was the second of three government estimates for quarterly GDP and beat Wall Street economists' predictions that the third-quarter advance would be unchanged from the first snapshot at 3.7 percent.

The gain marked the sixth successive quarter GDP has expanded at a rate exceeding 3 percent, implying healthy and sustainable growth.

Consumers ratcheted up spending at a 5.1 percent annual pace, more than three times the 1.6 percent rate in the second quarter and the strongest since a 7 percent surge in the fourth quarter of 2001. Consumer spending accounts for more than two-thirds of the $11-trillion U.S. economy.

Analysts said the GDP report was a reassuring sign that growth was on a safe track and added that it gave the Federal Reserve leeway to keep raising interest rates without fear of choking off growth.

Inflation data within the GDP report suggested the Fed has little to fear from price pressures.

A key price gauge favored by Fed Chairman Alan Greenspan -- the personal consumption expenditure index excluding food and energy costs -- rose at a mild 0.7 percent rate in the third quarter, the smallest pickup since a 0.5 percent gain in the fourth quarter of 1962.

U.S. central bank policy-makers next meet Dec. 14 to mull interest-rate strategy. They have lifted short-term borrowing costs at each of their last four gatherings and many economists expect another increase from a still-low 2 percent federal funds rate to come in December.