Posted on 11/30/2005 6:52:18 PM PST by wagglebee
WASHINGTON (Reuters) - U.S. economic growth was much stronger last quarter than first thought as spending rose more than estimated, while divergent price data on Wednesday left economists puzzled over inflation pressures.
Gross domestic product, a measure of all goods and services produced within U.S. borders, grew at a revised 4.3 percent annual rate in the third quarter, the fastest pace since the first three months of 2004, the Commerce Department said. Growth had initially been reported at 3.8 percent.
The report also showed inflation was milder than first thought. A price gauge favored by the Federal Reserve -- personal consumption expenditures excluding food and energy -- rose just 1.2 percent in the July-to-September period, down from the originally reported 1.3 percent pace.
That was the lowest rate of core inflation in more than two years. Economists had expected the index to be revised higher.
However, data from the private sector showed prices paid by businesses in the Midwest rose in November to their highest level in 26 years while business activity eased, suggesting it may be too early to dismiss the threat of inflation.
The Federal Reserve also raised a small inflation flag in its "beige book" summary of economic conditions, noting that some businesses were able to pass on higher costs for energy, raw materials and transportation to consumers. Upward pressure on wages, however, was modest.
While the report noted some slowing in the housing market, it said commercial real estate was picking up, hiring across a variety of industries had increased, and several districts were "generally optimistic" about the holiday shopping season.
The National Association of Purchasing Management-Chicago said its business barometer came in at 61.7, compared with 62.9 in October and above Wall Street forecasts for 60.0. The prices paid index surged to 94.1 from 79.6 in October.
HURRICANES HURT PROFITS
"Today's reports show the economy is still quite healthy -- it has taken some hits last quarter with the hurricanes, but it's still pretty resilient," said Gary Thayer, chief economist at A.G. Edwards & Sons in St. Louis.
"The Fed can see there are price pressures early in the process, but companies are able to offset that through increased productivity ... and it's just not showing up as higher inflation at the core consumer level," he said.
Thayer said Wednesday's data reinforced expectations that the Fed would raise interest rates in December and possibly in January, taking borrowing costs to 4.5 percent, but could then likely stand pat as inflation pressures receded. Policy-makers have raised rates 12 times since June 2004, taking overnight borrowing costs to 4 percent from 1 percent.
Treasury debt prices fell on the higher-than-expected growth report and robust reading on Midwest business activity, while the dollar was little changed and blue-chip stocks fell.
The Commerce Department report also showed Gulf Coast hurricanes Katrina and Rita hit corporate profits in the third quarter as insurers were sideswiped by huge benefit payouts and companies lost properties in the region.
After-tax corporate profits fell 3.7 percent, the largest decline in four years, after a 5.3 percent rise in the second quarter. The storms cut $151.2 billion from profits.
While the GDP report reinforced the view the U.S. economy is on a solid footing, economists expect growth to cool in the fourth quarter and into 2006 as the housing market starts to fade and consumers pull back.
The stronger GDP growth in the third quarter was attributed to higher spending by both businesses and consumers. Consumer spending advanced at a solid 4.2 percent pace, above the 3.9 percent rate first reported. Spending on housing grew at an 8.4 percent pace, up from the 4.8 percent growth first reported, after a 10.8 percent surge in the second quarter.
Business spending was also robust, climbing at an 8.8 percent pace, above the initially estimated 6.2 percent growth.
Why can't Bush get his public relations act together and get good news like this out to people, frequently and often?!
Good news for the US. The Libs are probably crying.
We did find WMD's in Iraq.
We are winning the war on terrorism.
The economy is better than it ever was under Clinton.
And all of this has been accomplished despite the fact that the exact opposite is reported. Bush should go on TV during prime time and tell the world the truth.
Bush's fault!!!
The libs are living in an alternate reality, where everything is going wrong. I like to tell my friends they are "stuck in the Matrix (like the movie)". Reality has a way of asserting itself, and they aren't going to like or understand it.
They will probably say that this means we can afford to pay higher taxes and fund more welfare programs.
KERRY: "This news is very troubling...to our chances in 2006"
As the opinion journal and James Taranto reported about the NYT newspaper...
It's in the news. I've seen numerous articles on this everywhere.
Only problem is the MSM is always trying to find the dark lining to the silver cloud.
And like some on these boards who (for example) are CONSTANTLY complaining about outsourcing etc, the liberals have taught us we can be miserable and disatisfied even in the BEST of times.
"Upward pressure on wages, however, was modest"? Still it might be safer to nip this pressure in the bud!
Bttt
[Yawn.] Not to be printed in the newspaper. Not meeting the current media criteria for "news".
The only real current economic news is the end of the housing boom (hasn't happened yet, but will.)
We'll see how Wall St reacts tomorrow.
"The economy is better than it ever was under Clinton."
Not entirely true. The 1990s were probably one of the 5 or 6 biggest booms in US history. Wouldn't have happened without tax cuts from a Republican House and Senate, plus, it was just a techmological event---a rarity.
"stuck in the Matrix"
good image.
A bad omen for the left!!!!
anyone got a side by side comparison of Clinton's economic number with Bush's
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.