- The Washington Times - Thursday, October 16, 2003

Several reports on recent economic activity suggest that the long-anticipated acceleration of the growth rate has occurred. The Federal Reserve issued its Beige Book Wednesday, which reported that “the pace of economic expansion has picked up.” Also, the Commerce Department reported that retail sales increased at a 12.2 percent annual rate during the July-September period. Yesterday, the Fed reported that during the third quarter, total industrial production grew at a 3.3 percent annual rate. Manufacturing output, which had fallen during each of the three previous quarters, increased at a 2.9 percent rate last quarter. Meanwhile, the Labor Department reported yesterday that initial claims for unemployment benefits fell to an eight-month low.

These favorable reports buttress the view among an increasing number of economists that the growth rate for the July-September quarter probably exceeded 5 percent. And that pace for the just-completed quarter appears to have provided significant momentum for the fourth quarter.

Specifically, the Fed reported that consumer spending “generally strengthened.” The Fed’s survey among its district banks also found “broad-based strength” in residential real estate and construction. But commercial real estate markets remained “sluggish.” The Fed reported that most service industries have shown improvement.

A majority of the Fed’s districts reported “a pickup in manufacturing activity, with several indicating significant improvement in a wide variety of industries.” Perhaps signaling a rebound in the weakened technology sector, demand for semiconductors increased. However, reports about capital spending remained decidedly mixed. A majority of business contacts in several districts “cite• hesitation and lackluster [capital] spending plans going forward.”

While the Fed described the labor markets in most districts as “slack,” it noted “modest signs of improvement in a number of districts,” including some employment gains in the manufacturing sector.

On balance, the Fed’s latest Beige Book offered encouraging economic news. Meanwhile, with the S&P; 500 stock index having increased by nearly a third since its recent cyclical low in March, households will notice continued growth in their third-quarter 401(k) reports, a fact that should contribute to consumer spending. Politicians increasingly look to 401(k) valuation growth as an indicator of public support for economic conditions. If strong economic growth persists through the end of the year and into the spring, as many economists expect, business investment will likely rebound, and labor markets, which saw an increase in nonfarm employment in September for the first time in eight months, will show improvement.

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