Economy surges at best rate in decades

WASHINGTON -- Accelerating from a jog to a sprint, the economy surged from July through September at the fastest pace in nearly two decades. Both consumers and businesses helped power the gains, fresh evidence the national rebound is on firmer footing.

The broadest measure of the economy's performance, gross domestic product, grew at a breakneck 7.2 percent annual rate during those three months, more than double the 3.3 percent rate in the previous quarter, the Commerce Department reported Thursday.

"Consumers were buying everything from cars and clothes to homes, and businesses are seemingly coming out of their cocoon," said Mark Zandi, chief economist at Economy.com.

Economists said that near rock-bottom short-term interest rates, along with President Bush's third round of tax cuts, induced consumers and businesses to spend and invest more and helped the economy move at a faster clip during the summer. The next challenge is making sure the rebound is self-sustaining, they said.

The nation's payrolls grew by 57,000 in September -- the first increase in eight months. But analysts have said the economy needs to add a lot more jobs than that each month to drive down the 6.1 percent unemployment rate.

The Bush administration contends that as economic growth improves, meaningful job creation will follow. Bush will be counting on that as he faces re-election in 2004.

"The tax relief we passed is working," Bush said, citing the latest GDP showing. "We left more money in the hands of the American people, and the American people are moving this economy forward."

The president cautioned against expecting "economic growth numbers like this every quarter. Yet by continuing a pro-growth agenda, we will sustain growth and job creation in this country."

Democrats argue that the president's policies and tax cuts have done little to spur significant job growth, have contributed to a record budget deficit in the recently ended fiscal year and will hurt the economy over time if deficits put pressure on long-term borrowing rates.

"It is a little like a drunk going on a binge," said Sen. Kent Conrad, D-N.D. "It feels good for a while but you all know that the hangover is coming."

The 7.2 percent growth rate in GDP, the measure of the value of all goods and services produced in the United States, was the best since the first quarter of 1984.

Economists believe the economy will grow at a slower but still healthy 4 percent rate in October-December period as some of the stimulus provided by the tax cuts fades.

In other encouraging economic news from the Labor Department, new claims for unemployment benefits last week dropped by 5,000 to 386,000, a sign that layoffs are slowing. U.S. workers' wages and benefits rose 1 percent in the third quarter, compared with 0.9 percent from April through June.

In the GDP report, consumer spending surged by 6.6 percent rate in the third quarter, compared with 3.8 percent in the previous quarter.

While consumers have been the main force keeping the economy going, there are more signs that businesses are starting to do their part.

Especially encouraging was the 15.4 percent growth rate in spending by businesses on equipment and software in the third quarter, the largest increase since the first three months of 2000.