Despite Hurricanes, U.S. Economy Posts Healthy Growth

The U.S. economy turns in a solid third-quarter performance, growing at an annual rate of 3.8 percent. That's slightly better than what most analysts expected and an increase over the rate achieved in the second quarter. Analysts said the Gulf Coast hurricanes had little effect on the economy.

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Despite hurricanes and rising energy prices, the US economy continued to grow at a healthy pace during the third quarter of this year. The Commerce Department said today the economy expanded an annual rate of 3.8 percent between July and September. That's slightly more than many economists expected. But some cautioned that the numbers don't yet reflect the full impact of Hurricane Katrina. NPR's Jim Zarroli reports.

JIM ZARROLI reporting:

The past few weeks have been somewhat anxious times for the US economy. Consumer confidence is down sharply. The major stock indexes have lost ground for the year and there's growing concern that rising energy prices will slow growth. But so far, at least, there's no sign that any of this has affected the overall economy. The Commerce Department said today that growth exceeded 3 percent for the 10th straight quarter.

Mr. RICHARD YAMARONE (Argus Research): I think it's just telling us that the economy is on a firm footing with very solid fundamentals.

ZARROLI: Richard Yamarone, chief economist at Argus Research, says the economy fired on all cylinders during the quarter. Consumer spending rose by nearly 4 percent with especially strong automobile sales and government spending was up 7.7 percent. Yamarone says not even the sharp rise in energy prices seemed to affect the economy too much.

Mr. YAMARONE: This is not what they teach you in grad school on how to do forecasting. You know, traditionally when oil prices, energy prices are elevated at record high levels, you tend to see somewhat of a softening in economic growth, consumer spending, business investment, and that certainly wasn't the case in the third quarter.

ZARROLI: Yamarone says one reason growth remained stronger in the quarter is that companies haven't yet passed on higher fuel prices to their consumers at the rate that many analysts expected.

Mr. YAMARONE: There are a number of companies that said that they have intentions of passing on higher energy prices through their products. We've heard from Clorox. We've heard from Kimberly-Clark. We've heard from Procter & Gamble. Come the 1st of January we're going to see some higher prices in consumer products, but today we really haven't seen all that many.

ZARROLI: In fact, the government said today the key measure of inflation actually fell during the third quarter when food and energy costs were excluded. But Commerce Department officials also noted that the third quarter numbers are preliminary and are virtually certain to be revised. Economist Josh Bivens of the Economic Policy Institute says today's report doesn't include some data from September such as personal income numbers, and September was the time when the full impact of Hurricanes Katrina and Rita was being felt. Bivens says the report also suggests one potential problem for the economy. Consumer spending actually outpaced wage growth, suggesting that much of the boom in growth continues to be fueled by credit cards and home equity loans.

Mr. JOSH BIVENS (Economic Policy Institute): What that says for the future is I don't think we can rely on consumption growth to power forward unless we see better underlying income growth. That is, people can't put stuff on their credit card forever, and so I think it's just yet another reason to think this economy is not out of the woods.

ZARROLI: As for the Bush administration, today's report was a welcome piece of good news in a week when there hasn't been very much of it. In a statement, Commerce Department Secretary Carlos Gutierrez said last quarter's solid growth coming at a time of many challenges is evidence of the underlying resilience of the US economy. Jim Zarroli, NPR News.

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