- The Washington Times - Wednesday, November 30, 2005


The nation’s economy demonstrated just how sturdy it is, posting its best quarterly showing in more than a year despite the Gulf Coast hurricanes.

The gross domestic product (GDP), the best measure of economic growth, increased at a hardy 4.3 percent annual rate from July through September, the Commerce Department reported yesterday.

The upgraded performance reflected brisk spending by consumers and businesses, despite record energy prices and stronger investment in home building.

“The economy shrugged off the ill effects of the hurricanes very gracefully,” said Mark Zandi, chief economist at Moody’s Economy.com.

But the hurricanes did hamper economic activity, especially in jobs. Mr. Zandi and other economists think economic growth probably would have topped 5 percent if the hurricanes had bypassed the United States.

Nonetheless, the GDP’s growth during the third quarter was the strongest since the first three months of 2004. Also, it showed that the economy gained considerable momentum from the 3.3 percent pace in this year’s second quarter, the April-through-June period.

The third-quarter figure also exceeded analysts’ projections of a 4 percent pace. GDP measures the value of all goods and services produced within the U.S.

Separately, a Federal Reserve report suggested the economy had solid momentum in October and much of November.

Manufacturing, retail sales and hiring improved in many regions, the Fed said. Housing activity, while still healthy, slowed in many markets; demand for home mortgages eased in some areas.

The Fed’s observations added to other signs of a gradual cooling in the hot housing market.

Looking ahead, economists predict the economy will turn in a solid performance in the October-to-December quarter, even if consumers tighten their belts as expected.

Projections for the fourth quarter range from a growth rate of more than 3 percent to 4 percent.

In the third quarter, though, consumers and businesses did their part to keep the economy rolling.

Consumer spending grew at a 4.2 percent pace, the strongest since the final quarter of 2004. Economist predict consumer spending will slow considerably in the fourth quarter, even if holiday sales are solid.

Growth from other areas should allow the economy to log a good quarter, most economists said.

Businesses boosted spending on equipment and software at a 10.8 percent annual rate in the third quarter, while investment in housing construction grew at a 8.4 percent pace.

Federal spending rose at an 8.1 percent rate, reflecting some outlays due to the hurricanes, analysts said.

President Bush, pointing to the GDP report, said yesterday that “businesses have overcome the challenges of two hurricanes and high energy prices.”

While the overall economy has weathered the fallout from the hurricanes well, the labor market has felt the devastation more deeply.

Employment in September declined for the first time in two years; in October, payrolls grew by just 56,000, an anemic figure.

Ahead of the government’s release tomorrow of the employment report for November, many economists are forecasting a healthy rebound, with the economy adding more than 200,000 jobs during the month.

Fed Chairman Alan Greenspan and his colleagues maintained at their Nov. 1 meeting that the hurricanes only “temporarily depressed” employment and production.

Katrina slammed into the Gulf Coast in late August; Rita followed in late September. Those storms, which battered crucial oil and gas facilities, choked off commerce and destroyed businesses, sent energy prices skyward and fanned inflation fears.

To fend off inflation, the Fed raised interest rates in November and signaled that a rate increase was likely at its next meeting Dec. 13.

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