YOU ARE HERE: LAT HomeCollections

Economy Grows at a Brisk 2.7% : Upswing: Consumer spending helps boost gross domestic product for third quarter. Bush heralds news as a sign of recovery, but some economists have doubts.


WASHINGTON — The U.S. economy, long an albatross for President Bush's reelection hopes, grew at an unexpectedly brisk 2.7% annual pace between July and September, the Commerce Department reported Tuesday, sparking elation in the President's campaign but doubt among some economists that the tempo will be sustained.

The third-quarter figures on gross domestic product--the last overall report card on the economy before the Nov. 3 election--showed growth almost twice as fast as most private analysts had forecast, with a helpful boost from consumer spending and business investment, along with continued low inflation.

Bush and Vice President Dan Quayle immediately seized on Tuesday's news as evidence of a long-awaited economic turnaround and trumpeted the findings at their campaign stops.

The third-quarter growth rate is a marked contrast to the meager 1.5% pace during the April-June quarter and suggested at least some economic vitality, despite continuing high unemployment and anxiety among consumers.

"We have now six straight quarters of growth in the United States and yet the Democrats keep telling us that everything is going to hell," Bush told a cheering crowd in Des Moines. "And they're wrong. . . ."

"Let's keep it growing by my plan, not by the Democratic plan," he said later in the day. "It's going to be very hard for the naysayers and the pessimists, who can only win by convincing people how bad things are, to refute the fact that this is very encouraging for America. If you think I'm happy, you're right."

The Clinton camp fired back with a harsher critique of U.S. economic performance.

Gene Sperling, economic coordinator for the Clinton campaign, said the Bush team must have "awfully low standards" to be upbeat about such an anemic recovery.

"It's a poignant sign of how little they have to talk about that the President and his people would consider this something to brag about," Sperling said.

Separately Tuesday, the Conference Board announced that the confidence of U.S. consumers dropped for the fourth month in a row, a development that undercut a brief stock market rally that followed the new figures on growth.

By day's end, the Dow Jones industrial average had closed down 8.38 points, at 3,235.73.

In addition, the Labor Department said American workers' wages, salaries and benefits rose 3.5% during the year ended Sept. 30, the smallest increase in five years.

Many economists believe that the recession technically ended in the spring of 1991. But they have been disappointed by the stop-and-go pace of growth since then. The economy has moved in a sluggish, frustrating pattern that contrasts sharply with the ebullient recoveries typical since World War II.

According to the Commerce Department, consumer spending picked up in the third quarter, growing at an annual rate of 3.4%, after having slipped into negative territory earlier this year. Spending on big-ticket items, such as furniture and appliances, rose at an 8.6% annual rate in the third quarter, and spending for services and less-expensive products rallied more modestly. Government spending--led unexpectedly by defense--rose at a 2% rate, the largest gain in almost two years.

Business investment, meanwhile, was up at a 0.3% rate because of a substantial 8.5% increase in spending on capital goods such as machinery and computers; spending on buildings for business plunged 17.7%. Housing construction rose at a slight 0.4% rate.

Hurricanes Andrew and Iniki hindered third-quarter growth, Commerce Department officials said, cutting personal income by $14 billion due to uninsured losses of property, work interruptions and crop damage.

Perhaps the least ambiguous news was about inflation, which moderated to a 2.4% rate, down somewhat from 3.2% in the second quarter, a development that cheered many economists.

"The real significance of this report is that we're in a new expansion," said James F. Smith, an economist at the University of North Carolina at Chapel Hill. "We are on the verge--or already there--of having much lower inflation and much steadier growth than we've had for 30 years or more."

Other analysts, however, argued that Tuesday's Commerce Department report was skewed by unusual factors, such as a buildup of inventories--reflecting excessive factory production and a robust supply of farm commodities--and a temporary spurt in government spending on defense that will not be sustained. The report of 2.7% growth was a preliminary statistic.

Moreover, skeptics pointed out that the broader economic climate of joblessness and weak income gains is not consistent with a vigorous recovery.

The Commerce Department report is "good news for the Republicans, but it is not as good as it appears on the surface," said Robert G. Dederick, chief economist with the Northern Trust Co. in Chicago. "I don't think it should be taken as a forerunner of the growth level in the near future."

Los Angeles Times Articles