Pace of U.S. Recovery Picked Up Speed in Third QuarterBy John M. Berry
The Washington Post
After a stutter-step early this year, the U.S. economy picked up speed in the three months from July to September as growth hit a 2.8 percent annual rate despite continued defense spending cuts and farm losses, the Commerce Department reported Thursday.
The driving force behind the faster growth was a large increase in consumer spending. Except for the one-time farm losses from Midwestern floods and Southeastern drought, the growth rate for the quarter would have been 3.4 percent, analysts said, an expansion pace strong enough to generate a substantial number of new jobs, bring down unemployment and boost business profits.
President Clinton hailed the growth data as proof that his economic policies were working. "We are moving in the right direction and we have to stay on this course," he told reporters in the Rose Garden of the White House.
The unexpectedly good economic news sparked a rally on Wall Street, sending the Dow Jones industrial average up 23.20 to a record high of 3687.86-its second record close this week.
Also Thursday, the Treasury Department reported that the federal budget deficit declined in the fiscal year that ended Sept. 30 for the first time in four years, helped by lower interest rates and a stall in the savings and loan cleanup.
The $254.9 billion deficit was below both last year's record $290.3 billion and the administration's $322 billion prediction, made in April. Still, it was the third-highest deficit in history. Economic forecasters, including those in the Clinton administration, said Thursday's growth report bolstered their predictions that economic growth would accelerate in the second half of this year. A number of them said growth would be at a 4 percent rate or more this quarter.
The 2.8 percent growth rate in gross domestic product, the measure of goods and services produced in the United States, comes on the heels of rates of a 1.9 percent rate in the previous three months period and a scant 0.8 percent in the three months from January to March.
However, the stronger growth of recent months so far has made little if any dent in the profound skepticism among U.S. households and business executives about what they think the future holds for the economy.
Confidence among consumers, as measured in monthly surveys of their views on current and future economic conditions, is close to levels usually seen in recessions, largely because of worry about jobs. Among small business owners, Dun & Bradstreet Corp. recently found the lowest level of optimism about the economic outlook in the 13-year history of its survey.
Analysts said that consumers are responding to the lowest interest rates in 25 years, which have cut monthly payments on car loans and home mortgages. The low rates are also spurring new homes sales and housing construction, which rose at a 10 percent rate in the third quarter, according to the Commerce report.
Low inflation is also allowing consumers to stretch their dollars further. A price index included in the report covering goods and service bought by businesses, governments and consumers rose at an annual rate of 1.8 percent in the third quarter, the lowest rate in a decade.
Payroll employment is up nearly 2.5 million from early last year, and the unemployment rate, 6.7 percent last month, is down a full percentage point from its peak. Meanwhile, the number of people looking for work but unable to find it-those counted as unemployed-has fallen to 8.5 million from 9.8 million.