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November 1, 2007
Economy Continues to Chug Along
Despite worries over credit and the housing market, the economy grew at a better than expected rate of 3.9% in the 3rd quarter:
The 3.9 percent annual growth rate compared with 3.8 percent in the second quarter and 0.6 percent in the first quarter. The report from the Commerce Department is a preliminary estimate of gross domestic product in July through September, a volatile period that included the bleakest moments of the summer’s subprime mortgage collapse. Economists are finding themselves in uncharted territory. The strong economy belies the effect of other individual indices that are pointing down; factory employment, the weakening dollar, housing, and high fuel prices.
The growth rate, which beat most analysts’ expectations, adds a new wrinkle to the Fed’s deliberations at today’s meeting. The central bank is expected to cut its benchmark interest rate by a quarter-point in response to widespread concerns about the lagging housing market and a credit squeeze. But today’s G.D.P. report presents a more cheerful view of the economy.
The growth rate was the fastest since the first quarter of 2006. Consumer spending expanded at more than twice its rate in the second quarter, rising 3 percent after a 1.4 percent gain in the second quarter with a surge in sales of big-ticket products like appliances and furniture. Businesses spent more, too, with producer expenditures growing at a 7.9 percent annual rate, down slightly from 11 percent in the second quarter.
And yet employment continues to show growth, inflation (despite the high cost of fuel) is still under control, the stock market continues merrily along, and corporate profits are generally good.
I'm no economist so when even those guys start scratching their heads, best let the figures speak for themselves.