Homes, war spur quarter’s growth

ASSOCIATED PRESS

The U.S. economy, powered by a very vigorous housing market and a huge dose of spending for the war in Iraq, grew at a surprisingly strong 3.3 percent clip this past quarter and raised hopes for an even better performance the rest of the year.

The increase announced yesterday in the gross domestic product for the April-June period was an upward revision from a 3.1 percent estimate a month ago, reflecting greater strength than previously thought in housing and several other sectors.

Analysts said growth in the just-ending third quarter would be at a significantly higher rate, fueled by President Bush’s third round of tax cuts and continued low interest rates. That potent stimulus combination has helped push auto and home sales to record levels.

“The economy is firing on all cylinders,” said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. “The strong economic growth we are predicting in the future should create some new jobs.”

That would be welcome news to Mr. Bush, who is facing stepped-up attacks from Democratic presidential candidates who contend he has the worst jobs record since Herbert Hoover was president.

The better-than-expected GDP report failed to lift spirits on Wall Street, where stocks extended their slide. The Dow Jones Industrial Average fell 31 points to close at 9,313, wrapping up a week in which the Dow lost 3.4 percent, its worst weekly performance in six months.

The Nasdaq Composite Index fell 25 points, or 1.4 percent, to 1,792, following a loss of 26.46 the previous session. The Standard & Poor’s 500 index declined 6 points, or 0.6 percent, to 997 after losing 7 points Thursday.

Many analysts said that based on the GDP revisions and reports on activity in July and August they now believe the economy is growing at a rate in excess of 5 percent in the current quarter and should be able to maintain growth above 4 percent in the final three months of the year.

That forecast, if it proves to be correct, would be the strongest back-to-back growth rates since the final two quarters of 1999, a period in which the economy was headed toward a record 10-year economic expansion.

Since then, however, the United States has endured rough times that began with the bursting of the stock market bubble in spring 2000, followed by a recession that started in March 2001.

While the country has been officially out of recession since November 2001, it has yet to mount a sustained rebound strong enough to prompt companies to begin rehiring laid-off workers. Job losses just this year have totaled a half-million workers.

Economists said the new round of government stimulus from the tax cuts and increased military spending coupled with the Federal Reserve’s s low interest rates should be enough to get the economy out of its funk.

“We have seen a real pop in activity in July and August. People have been spending their tax cuts,” said David Wyss, chief economist at Standard & Poor’s.

Still, analysts cautioned that they have predicted second-half economic rebounds for three years that have failed to happen as companies and consumers remained uncertain about the future.

In a second report yesterday, the University of Michigan said the final reading on its consumer confidence index slipped to 87.7 in September, down from 89.3 in August.

“Higher gas prices and continued job losses had the greatest impact on lower-income households, and these households reported larger declines in confidence,” said survey director Richard Curtin.

Mindful that the economy has struggled to mount a sustained rebound, the Fed has stressed that it plans to leave a vital short-term interest rate, currently at a 45-year low, unchanged for as long as it takes to allow the rebound to gain momentum.

The 3.3 percent GDP growth rate in the second quarter followed two consecutive quarters in which growth averaged an anemic 1.4 percent. Reflecting the prolonged weakness, after-tax corporate profits shrank by 5 percent in the second quarter, the government said.

Among the GDP components, consumer spending, which accounts for two-thirds of total economic activity, rose at a 3.8 percent rate in the second quarter.