Posted on 10/31/2007 5:50:09 AM PDT by Brilliant
WASHINGTON (AP) -- The economy picked up speed in the summer, growing at a brisk 3.9 percent pace, the fastest in 1 1/2 years and an impressive performance even as a credit crunch plunged the housing market deeper into turmoil.
The latest snapshot of the country's economic health, released by the Commerce Department on Wednesday, suggested that the economy is demonstrating much resilience and thus far holding up well to the strains in the housing and credit markets, which had intensified during the third quarter and rocked Wall Street.
Individuals ratcheted up their spending. U.S. businesses sold more goods abroad and boosted some investment at home. Those were some of the main factors helping to push up overall economic activity in the July-to-September quarter.
The third quarter's growth rate was up slightly from a 3.8 percent pace logged in the second quarter. It marked the strongest showing since the first quarter of last year.
The increase in third quarter gross domestic product exceeded analysts' forecasts for a 3.1 percent growth rate for the period. Gross domestic product is the value of all goods and services produced within the United States and is considered the best barometer of the country's economic fitness.
The strong performance came despite the worsening housing slump.
Builders slashed investment in housing projects by 20.1 percent, on an annualized basis, in the third quarter, the largest drop in a year. That was even deeper than the 11.8 percent annualized cut made in the second quarter and provided stark evidence of the problems in the housing market.
The ill effects of the housing slump and credit crunch, however, didn't deter consumers.
Consumers, whose spending is an important ingredient for the economy's good health, actually rediscovered their appetite to spend in the third quarter. Their spending rose at a 3 percent pace, a considerable improvement from the second quarter's rather weak 1.4 percent growth rate.
One of the reasons why people are continuing to spend is because the nation's employment climate has managed to stay fairly sturdy despite all the problems facing the economy. Job creation perked up in September and wages grew solidly. The unemployment rate crept up to 4.7 percent but that is still low by historical standards.
Wage and job gains have served as shock absorbers for some of the negative forces of an ailing housing market, weaker home prices and more restrictive credit.
Still, the carnage in the housing meltdown has been painfully felt, especially in the area of higher-risk "subprime" mortgages made to people with spotty credit. Home foreclosures have soared. Lenders have been forced out of business. And, financial institutions have wracked up huge losses.
Businesses, meanwhile, increased their spending on equipment and software at a 5.9 percent pace in the third quarter, up from a 4.7 percent growth rate in the prior period. They also boosted their investment in inventories, another factor that added to GDP.
Strong sales of U.S. exports to foreign buyers was another big factor in the good third-quarter showing. Exports of goods and services grew by 16.2 percent, on an annualized basis, during the quarter. That was the biggest increase since the final quarter of 2003.
Business investment in commercial structures, such as office buildings and factories, grew at a 12.3 percent pace in the third quarter, a good showing but down from a sizzling 26.2 percent growth rate in the second quarter.
Government spending also contributed to third quarter GDP growth. Such spending rose at a rate of 3.7 percent, following a 4.1 percent pace in the second quarter.
As the economy picked up a bit of speed, so did inflation.
An inflation gauge closely watched by the Federal Reserve showed "core" prices -- excluding food and energy -- rose at a rate of 1.8 precent in the third quarter. Although that was up from a 1.4 percent pace in the second quarter, it was still within the Fed's "comfort zone."
Still, skyrocketing oil prices, which have reached record highs in recent days, may pose a risk to the economy. If it causes prices of other goods and services to rise, inflation could spread. If more expensive energy prices chill consumer spending, it could add to the forces threatening to slow economic activity.
The meltdown in the mortgage market has made it harder for people to obtain financing to buy homes. That's aggravating problems in the housing market and leading to a mounting pileup of unsold homes. Given that, the housing slump is expected to drag on well into next year.
The Fed's overriding worry is that problems in housing and harder-to-get credit could seriously crimp spending and investing by people and businesses, dealing a dangerous blow to the national economy. Many analysts are hopeful the economy can avoid a recession. Growth in the current October-to-December quarter is expected to slow to a pace of around 2 percent or less.
There goes my marketing plan to sell pencils on street corners.
Bush’s fault
“Brother, can you spare a dime”
You never know til they announce it.
What I’m thinking about reading this is the kook sites that insisted a year ago, two years ago, three years ago, five years ago, the economy was DOOMED.
As I’ve noted on those occasions, only fools and Democrats bet against this economy.
I may just TIVO the MSM evening news programs to watch their spin on this number.
Teeth are gnashing, heads are spinning, meetings are being called, and strong, strong coffee is being brewed.
“Ahem, I say ahem again, ahem; I say old chap, how in hell are we going to spin this”?
“Still, skyrocketing oil prices, which have reached record highs in recent days, may pose a risk to the economy.”
I’m not sure that I would say that they are “skyrocketing” at this point. They recently went up from $70 to $90. That’s a 28% increase. Of course, that is a lot, but not as much as from $20 to $70, which is an increase that the economy has already weathered.
They are going to start talking about inflation. Just watch.
And their plan is to surrender to our enemies in the Middle East, raise our taxes, and impose regulations on our businesses. Yeah, that will turn things around!!
the economic surge is working. let’s end it!
I guess not enough people were watching CNBC’s doom-and-gloom squad of “experts” trying to talk the economy into recession. They’ll keep trying, though.
That's standard political prop practiced by both parties. Of course the Dems will call any term by any Republican a disaster. It has been a disaster... for them. Even with control of congress they can barely get any of their screwball programs passed.
The real problem naturally is that they always have a reliable megaphone screaming at the American public in the form of Big Media. Which is why when interviewed many average citizens will say that we're in a recession. Because the media dutifully told them they were. If one hundred Americans were surveyed about their financial situation and ninetynine were in great shape financially, Big Media would find that one person who was not doing well and attempt to depict that one unfortunate as representative of all Americans.
Economy has just grown 3.9% but there's fear of a recession? Do the authors not know the definition of the word?
Oh, the authors know the definition. They're hoping that we do not.
It reduces the chances from 99% to 90%. But they will still cut. They are being proactive in trying to prevent bigger problems down the road. Financials and housing can take the market down if it gets to the crisis level.
What the hell?
“You never know til they announce it.”
And after they announce it, you STILL never know. When is the upward revision due? What is the standard delay they put on those things while Bush has been in office...?
Dem’s will still say it’s a bad economy... and the DBM will not challenge them.
The Dems will either continue to declare the economy is bad or if that doesn't work we'll hear non stop about how the "economic divide" between rich and poor is growing.
What an awful country we live in. Prosperity is high, unemployment is low, we have had no attacks within our borders for 6 years, and everyone is free to dissent without fear of retribution. So I guess this is why I see a dozen Impeach Bush stickers every day.
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.