- The Washington Times - Saturday, December 21, 2002

The U.S. economy grew at a healthy 4 percent rate from July through September, the government said yesterday, but analysts remained concerned that rising unemployment and weak consumer spending would trim growth to half that amount in the current quarter.
The Commerce Department's final estimate of activity in the July-September quarter showed no change in the overall figure from the figure released a month ago, although individual components of growth shifted slightly.
Consumer spending rose at an even-faster 4.2 percent rate with purchases of big-ticket items, such as cars, surging ahead at a 22.8 percent, reflecting cut-rate financing offers.
But economists are worried that sales during the all-important Christmas season have dropped off considerably, in part because of consumer anxiety about rising unemployment, which returned to an eight-year high of 6 percent in November, and worries about the economic effects of a war with Iraq.
Many economists believe that growth will slip to around 2 percent for October through December, with the most pessimistic saying it could come in at less than 1 percent. The concern is that with growth slowing so much, any type of jolt could push the country back into a recession.
"If we assume a pretty quick and decisive war, then the economy should do well," said Sung Won Sohn, chief economist at Wells Fargo in Minneapolis. "But if we have a messy and costly war with a big rise in oil prices, then we could have another recession."
Mr. Sohn said a successful war could cut $30-per-barrel oil prices in half and give the economy the equivalent of a sizable tax cut. But a drawn-out conflict could send oil prices to $80 per barrel, disrupting business confidence and sending the stock market into another tailspin.
The 4 percent gross domestic product growth rate in the third quarter and the expected slowdown in the current quarter continues the economy's stop-and-go pattern in this recovery from last year's recession. Strong growth of 5 percent in the first quarter of 2002 was followed by a weak 1.3 percent rate in the April-June quarter.
Worries that the current weakness could spread and trigger a double-dip recession prompted the Fed to cut interest rates in November by a half-point, the Fed's 12th rate cut of the past two years.
Federal Reserve Chairman Alan Greenspan told a New York audience Thursday night that despite the Fed's efforts to push interest rates to the lowest level in 41 years, there were only limited signs that the economy has regained strength since hitting a "soft patch" in late August.
"The patch has certainly been soft," Mr. Greenspan said, citing concerns about a "subdued" market for jobs, a manufacturing sector still in the doldrums and depressed business-construction activity.
Another Fed official, William Poole, the head of the St. Louis regional bank, said one of the reasons for pessimism is that the recovery has been so erratic.
"The soft patch finishes the year on a down note, and that's partly why so many are so glum," he said in a speech yesterday.
President Bush, worried that voters will blame his administration for the lackluster recovery, is putting together a tax-cut package for individuals and businesses that will total as much as $300 billion. He will present his plan to Congress in January.

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