ICS Magazine

Economy Slowing After Solid Growth

December 20, 2002
WASHINGTON (Reuters) - The U.S. economy expanded briskly in the third quarter on a wave of consumer spending, the Commerce Department confirmed on Friday, but growth is forecast to slow sharply in the closing months of the year.

U.S. gross domestic product, the measure of total output within U.S. borders, rose at an annual rate of 4 percent in the July-September three-month period -- the same as estimated a month ago and more than triple the 1.3 percent rate posted in the second quarter.

The department's third and final assessment of third-quarter performance issued on Friday contained only minor changes from the figures it published a month ago.

The GDP figure was in line with Wall Street economists' expectations and was likely to have little or no impact on financial markets.

First estimates for fourth-quarter GDP will not be issued until January, but private-sector forecasters see the pace of expansion trailing off to less than half the rate seen in the third quarter.

The widely watched Blue Chip economic forecasters group estimated earlier this month that fourth-quarter GDP will brake to an anemic 1.4 percent annual rate before beginning to add power and grow more rapidly in 2003.

Consumer spending, which fuels two-thirds of national economic activity, increased at a 4.2 percent annual rate in the third quarter, a touch stronger than the 4.1 percent rate estimated a month ago and more than twice the second quarter's 1.8 percent pickup.

Auto sales were strong on the back of widespread zero-percent financing deals and other incentives offered by major manufacturers.

In a potentially optimistic sign, businesses built up their third-quarter inventories at an $18.8-billion annual rate. That exceeded the $15.5-billion estimate for inventory-building that Commerce issued a month ago and implied that businesses were adding to their stocks in hope of a strong holiday shopping season leading up to Christmas.

The GDP report showed a 0.8 percent drop in business spending on plant and equipment in the third quarter, slightly steeper than the 0.7 percent drop estimated earlier and the eighth consecutive quarterly decline in such spending.

A collapse in business spending led the economy into recession last year and Federal Reserve Chairman Alan Greenspan said late on Thursday, in an address to the Economic Club in New York, that more vigorous business investment was necessary in order to achieve faster economic growth.

Greenspan also said mounting global tensions -- a euphemism for a potential war with Iraq -- were putting a damper on investment and consumer demand and said an end to it should help unleash more vigorous economic growth in 2003.