The economy grew at a solid annual rate of 3.7 percent in July, August and September, driven by swelling demand for automobiles and other big-ticket items and consumers willing to spend considerably more than they earned, the Commerce Department said Friday.
The third-quarter growth rate for the nation's production of goods and services actually fell below most economists' expectations, but the swelling gross domestic product exceeded the 3.3-percent annualized growth rate of the previous quarter, April through June. The figure represents the last major economic statistic before the Nov. 2 election.
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Is It the Economy? The Washington Post's Jonathan Weisman writes that it has been a confounding election season for economy watchers.
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Transcript: Washington Post staff writer Jonathan Weisman discussed his story about why the economy may not be the best predictor of the outcome in this year's presidential election.
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"This is analogous to a car moving at a 55-mile-per-hour pace," said Richard Yamarone, director of economic research at Argus Research Corp. in New York. "We're no longer speeding, but we're not stalled either. We're right at the speed limit."
The largest driver of the nation's economic growth last quarter was personal consumption, which rose 4.6 percent, compared with an increase of 1.6 percent in April, May and June, the Commerce Department reported. Big-ticket items, especially cars and trucks, leaped 16.8 percent, compared to a slight decline in the preceding quarter. More than a quarter of total growth came from the sale of motor vehicles and parts alone.
To finance those purchases, consumers had to dig deep in their wallets, if not their bank accounts. Disposable personal income rose $53 billion, less than half the increase recorded between April and June. Inflation adjusted income rose 1.4 percent, compared to 2.4 percent the quarter before.
But personal spending jumped $123.8 billion, or 6 percent, pushing the savings rate from 1.2 percent in the second quarter to a scant 0.4 percent in the third -- the lowest rate since the depression.
"Consumers are spending everything they can possibly get their hands on," Yamarone said. "Prices are still low and deals, particularly in autos, are just too good to walk away from." Some General Motors dealerships in the Kansas City area were actually offering a free Chevrolet subcompact car with the purchase of a giant Tahoe or Suburban sport utility vehicle, Yamarone marveled.
The economy also was buoyed by surging defense spending, which rose 9.3 percent between July and September, after a smaller 1.9 percent increase in the previous three months. Defense spending, which reached an annualized rate of $556 billion, accounted for 11.4 percent of total growth in the third quarter.
With the election just days away, the report was seized on by Democrats and Republicans alike to buoy the fortunes of President Bush and Democratic challenger John F. Kerry.
"The American economy is growing stronger and better than ever," said Commerce Secretary Donald L. Evans. "Today's GDP numbers again prove the U.S. economy is the fastest growing major industrialized economy and the world's leading exporter. President Bush's leadership has put our nation on a path of growth and opportunity."
