The US economy grew at its fastest pace in more than 19 years in the third quarter of 2003 as consumers, aided by tax cuts, went on a buying spree, an unexpectedly strong government report showed today.
US gross domestic product surged at a 7.2 per cent annual rate in the July-September period, the Commerce Department said. It was the steepest climb since the first quarter of 1984 and more than double the second quarter's 3.3 per cent rate.
The increase, which also reflected a big gain in business capital spending, outstripped forecasts on Wall Street, where most economists had looked for a rise closer to 6 per cent.
Wall Street looked set to open higher on the report while bonds sold off, with investors guessing the GDP data would bring nearer the day the Federal Reserve would raise US interest rates from current bargain-basement levels.
Consumer spending gained at a hefty 6.6 per cent pace as lower tax withholding on paychecks and child tax credit checks put more cash in shoppers' hands. It was the biggest increase in consumer outlays since early 1988 and accounted for nearly two-thirds of GDP growth.
But even as the recovery quickened in the third quarter, a net 41,000 non-farm jobs were lost, bringing the number of job losses since President George W. Bush took office to 2.6 million.
The Bush administration has been happy to trumpet the impact its recent tax cuts have had in spurring a recovery, but has vowed not to rest until the jobs market catches up.
Congress passed a $350 billion White House tax plan in the spring that lowered tax-withholding rates in July and pumped out about $13.7 billion dollars in child tax credit checks in July and August.
Business spending rose 11.1 per cent in the third quarter, the steepest climb since the first quarter of 2000 and the second straight quarterly advance.
The third quarter's increase in business investment reflected a sharp pick-up in spending on equipment and software, which rose at a 15.4 per cent annual pace. Government spending was also up, even though defence spending was flat after giving a big boost to growth in the second quarter.
Businesses, meanwhile, appeared to be caught flat-footed by the strength of consumer spending, with inventories of unsold goods falling $35.8 billion. Many economists expect businesses to begin building inventories soon, which would help growth.