Report indicates economy gaining - East Valley Tribune: Business

Report indicates economy gaining

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Posted: Friday, August 29, 2003 8:30 am | Updated: 12:59 pm, Thu Oct 6, 2011.

The American economy grew at a revised annual rate of 3.1 percent in the second quarter, the government reported on Thursday. The unexpected strength led economists to raise their forecasts for the rest of the year.

Among the positive signs in the report were the continued strength of consumer spending, the bounce-back in business capital investment, the leanness of business inventories, which fell, and a jump in corporate profits. A surge in military spending connected with the war in Iraq was also a big contributor to second quarter growth.

Inflation, as measured by one of the price monitors included in the new data from the Commerce Department, is still low, rising at an annual rate of only 0.7 percent in the quarter. Analysts said this low level should prompt the Federal Reserve to keep shortterm interest rates low until the economy is back on its feet.

‘‘So far, the data have been pretty encouraging,’’ said Richard Berner, chief U.S. economist at Morgan Stanley, who said third-quarter growth could be as high as 5 percent, a full percentage point above his current forecast.

James Glassman, senior U.S. economist at J.P. Morgan, said, ‘‘We see a pretty nice story building up behind the scenes.’’

‘‘What is impressive about this number is the strength of final demand,’’ which grew at a 4 percent rate in the second quarter, Glassman said. He said his current forecast of 4.5 percent growth in the third quarter ‘‘should be higher.’’

‘‘When you see strong demand and falling inventories, that tells you the business community has been surprised by demand,’’ Glassman added. That means restocking of inventories should provide a good boost to growth this quarter.

The 3.1 percent growth rate is up from the Commerce Department’s initial estimate last month of 2.4 percent growth in the gross domestic product, which measures the output of goods and services in the United States.

That is a nice bounce in itself because it comes after two quarters of growth at an annual rate of 1.4 percent. The upward revision to the secondquarter growth rate were attributed to higher consumer spending, stronger exports and a reduction in the estimate of imports.

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