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Economy races in third quarter; consumer confidence surges
WASHINGTON -- The economy in the third quarter galloped ahead faster than an initial estimate, which was already the swiftest in nearly two decades. That burst, along with a surge in consumer confidence, raised hopes for the recovery's staying power.
The broadest measure of the economy's performance, gross domestic product, increased at an 8.2 percent annual rate in the July-to-September quarter, even better than the 7.2 percent rate estimated a month ago, the Commerce Department said Tuesday.
The new GDP reading -- embraced by President Bush as proof of the effectiveness of his administration's economic policies -- represents the strongest growth since the first quarter of 1984, when the economy surged at a 9 percent pace. The new estimate is more than double the 3.3 percent rate in the second quarter.
"I think the economy is back," declared an optimistic Mark Zandi, chief economist at Economy.com. "It has evolved from a very fragile recovery to a sustainable rebound."
In other economic news, consumers' confidence in the economy climbed in November to the highest level in more than a year as people perceived the job market to be turning around, the Conference Board reported. The private research group's consumer confidence index rose to 91.7 in November, up from a revised 81.7 in October.
"The surge in consumer confidence couldn't come at a better time," said Joel Naroff, president of Naroff Economic Advisors. "Households are becoming more confident about the labor markets and the future in general and that bodes well for this crucial holiday shopping season."
On Wall Street, the Dow Jones industrial average gained 16.15 points to close at 9,763.94.
Some analysts believe the economy is growing at a slower but still healthy rate of about 4 percent in the current October-to-December period, as some of the stimulus that helped in the third quarter -- President Bush's third round of tax cuts and a wave of mortgage refinancing -- fades.
Sales of previously owned homes fell by 4.9 percent in October to a seasonally adjusted annual rate of 6.35 million, the National Association of Realtors said. But even with the decline, October's sales marked the third best month on record and were on track to set an all-time high for all of 2003.
The main factors behind the upward revision to third-quarter GDP were stronger investment by business on new equipment and software, less severe cuts in companies' inventories and more brisk spending on residential projects. GDP measures the value of all goods and services produced within the United States.
"The economy is regaining the confidence of businesses and they are stepping up to the plate and spending and investing for the future," said economist Ken Mayland, president of ClearView Economics.
Bush, who wants the economy on firm footing as he heads into the 2004 re-election campaign, said the GDP report shows "the economy of ours is reacting to our policy. ... The tax relief we passed is working."
Democrats, however, blame Bush's poor handling of the economy for the loss of 2.3 million jobs since he took office in January 2001.
In October, the unemployment rate improved fractionally, to 6 percent, as the economy added jobs for a third straight month.
Steady improvements in job creation and in capital investment are crucial ingredients for the economic recovery to be sustained, economists said.
Consumers, meanwhile, continue to do their part to keeping the economy going. They boosted spending in the third quarter at a 6.4 percent rate. That was up from a 3.8 pace in the second quarter, but down slightly from the 6.6 percent rate previously estimated.
Especially encouraging was a 18.4 percent growth rate in business investment in new equipment and software in the third quarter. That was even stronger than the 15.4 percent pace previously estimated and up from 8.3 percent in the second quarter.
Spending on residential projects grew at a whopping 22.7 percent pace in the third quarter, also better than the 20.4 percent first estimated and up from 6.6 percent in the second quarter.
Fewer cuts to business inventories in the third quarter resulted in a 0.16 percentage-point increase to GDP in that three-month period, compared with a 0.67 percentage-point reduction to GDP as previously estimated.
Another factor in the upward revision to GDP in the third quarter: Slightly stronger spending by state and local governments. These governmental bodies boosted spending at a 2.3 percent pace, up from a 1.3 percent growth rate previously estimated.
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