- The Washington Times - Friday, November 1, 2002

The economy continued to grow by fits and starts in the summer, moving ahead by 3.1 percent largely on the strength of a consumer buying binge on automobile deals offering zero-percent-interest financing.
Business spending on computers and other investments posted its first small rise in two years, said the Commerce Department, which yesterday released a report on third-quarter growth that analysts said could be the most promising development in the economic recovery.
More recent signs have raised worries that the economy is stalling in the fourth quarter, prompting calls for the Federal Reserve, which meets Wednesday, to slash interest rates for the first time this year.
Auto sales retrenched after manufacturers scaled back special financing offers in September and October. Consumer confidence, the stock market and manufacturing activity have fallen steeply from summer levels while joblessness has crept upward.
President Bush hailed the growth report as "good news" as he campaigned for Republicans in Indiana. "We're making progress. But so long as somebody is looking for work and can't find a job, says to me we got a problem," he said.
The acceleration of growth from the anemic 1.3 percent rate set in the second quarter "is a treat, but we shouldn't let it trick us," said Jerry Jasinowski, president of the National Association of Manufacturers.
Half of the growth was the result of a whopping 48 percent jump in auto sales that Mr. Jasinowski called unsustainable. Excluding those sales, he said, the growth was at 1.6 percent about the rate many forecasters now expect in the final quarter of the year.
While the business sector's 6.5 percent growth spurt in technology spending was encouraging, the Commerce report showed that overall weakness in private investment and exports that drove the recession had continued, he said.
Sung Won Sohn, chief economist with Wells Fargo & Co., said businesses primarily are replacing worn or outdated equipment and are not ready to start expanding again.
Businesses have grown more cautious about increasing investment and hiring since the summer, according to a separate survey released yesterday by the National Association of Business Economists.
Meanwhile, consumers the main engine of growth for the economy this year must receive bigger and bigger inducements to spend, Mr. Sohn said.
"Zero-interest financing is like antibiotics: The market needs a stronger and bigger fix to maintain the current level of sales," he said. "As car sales drop, consumers will become a bit of a head wind for the economy."
Housing the other source of strength for the economy this year has plateaued, he said, and will weaken in the months ahead.
With the economy rapidly losing steam, Mr. Sohn said, he expects the Fed to cut rates by as much as a half-percentage point next week to keep the recovery going.
Joel Naroff of Naroff Economic Advisors said the economy's performance is laudable, given the stock market collapse in September, rumors of war with Iraq and "the horrors of the sniper attacks" in the Washington area.
Consumer confidence, which hit a nine-year low last month, may rebound this month as stocks staged a strong comeback in October and police last week seized suspects in the widely watched sniper case.
"The reality is the economy is growing at a solid pace," Mr. Naroff said.
He predicted consumers will continue to spend moderately in line with their increase in disposable income.
The Commerce report showed that the summer's growth was not stimulated by government defense spending, which could increase this winter in a U.S. war against Iraq, he said.
The 3 percent growth rate is unspectacular but sustainable, and perhaps the best the economy can muster in a "post-bubble world" for the stock market, which has yet to recover from a slump beginning in March 2000, he said.

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