American Economy Grows

[DBAHO]

THE US economy grew at a slower-than-anticipated, but still solid 3.7 per cent annual pace in the third quarter, the Government said overnight, in the last major report before the November 2 presidential election.

 

Wall Street analysts had been tipping an expansion of about 4.3 per cent after second-quarter growth of 3.3 per cent.

 

The report gave roughly equal dollops of comfort to President George W. Bush and his Democratic challenger John Kerry, each trying to elbow the other in the last days before the vote.

 

Mr Bush can boast of solid activity and a bounce in consumption, with consumer spending up 4.6 per cent and business investment up 11.7 per cent despite the searing crude oil and gasoline prices.

 

Senator Kerry can decry a weaker-than-expected economy and warn of forecasts that near-record crude oil and gasoline prices are poised to restrain US growth in the current quarter.

 

The argument could be crucial, with polls consistently showing jobs and the economy among the biggest factors for voters.

 

"It's neutral, it doesn't change a lot for either candidate," said Moody's Investors Service chief North American economist John Lonski.

 

"The economic situation is best characterised as one of sub par job creation that helps Kerry and hurts Bush."

 

Mr Bush accuses Sen Kerry of being a tax-and-spend liberal. Sen Kerry accuses Mr Bush of favouring the rich with tax cuts and being the first leader since the Great Depression to record a net loss of jobs during his term.

 

Highlights of the latest report showed:

 

• Consumer spending jumped 4.6 per cent, recovering from a meagre 1.6 per cent growth pace in the second quarter.

 

• Imports, which detract from growth, leapt 7.7 per cent, while exports rose 5.1 per cent.

 

• Businesses built up their stocks at a much slower pace, subtracting 0.48 percentage points from the growth pace.

 

Joel Naroff, president of Naroff Economic Advisors, said the performance was weaker than expected.

 

But "it is still a very good performance", he said.

 

"Consumers spent, businesses invested and exporters exported, meaning that the economy expanded solidly in the (northern) summer."

 

Most analysts see a deceleration ahead, however.

 

"We expect a significant slowdown in the fourth quarter and in 2005 due to the negative effect of higher oil prices, a less accommodative policy mix and a persistence of risk aversion from businesses," said CDC Ixis economist Marie-Pierre Ripert.

 

The report also showed core inflation for prices paid by consumers collapsed to a 42-year low.

 

The Federal Reserve's favoured inflation guide - the "personal consumption expenditure deflator" minus food and energy - crept up 0.7 per cent in the quarter, the smallest gain since 1962.

 

The tiny inflation figure means the central bank is unlikely to fear runaway prices even at current low interest rates.

 

That will feed market speculation of a pause in the Federal Reserve's drive to gradually raise the key federal funds target interest rate, now just 1.75 per cent.

 

Among other key findings:

 

• Total business investment soared 11.7 per cent, adding to a 12.5 per cent surge in the second quarter. Spending on equipment and software shot up 14.9 per cent, picking up from a 14.2 per cent pace the previous quarter.

 

• Housing investment growth slumped to 3.1 per cent from 16.5 per cent.

 

• Federal Government spending advanced 4.6 per cent, including a 9.3 per cent surge in national defence spending. • Real final sales - a measure of demand in the economy - rose 4.2 per cent, accelerating from 2.4 per cent in the second quarter.

[sox4lifeinPA]

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