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US economy grows 4.0% in 3rd quarter
Updated: 2004-12-23 08:53

The US economy grew at a brisker-than-expected 4.0 percent annual pace in the third quarter, the government said, raising hopes for a solid 2005.

The expansion in gross domestic product (GDP), powered by robust consumer and business expenditure, was faster than an earlier estimate of 3.9 percent growth, the Commerce Department said.

It followed a moderate 3.3-percent growth pace in the second quarter.

"The economy is improving. There might be some worries about the pace of job creation, but strictly looking at GDP, the economy is in full recovery," said Chris Rupkey, economist at Bank of Tokyo Mitsubishi.

The big dynamos in the economy were:

-- Consumer spending, which surged at a 5.1-percent pace after growth of 1.6 percent in the second quarter.

-- Business investment, which roared 13.0 percent higher, after a gain of 12.5 percent in the previous quarter.

-- Final sales, which leapt 5.0 percent, twice as fast as in the previous quarter.

The government revised the economic pace higher, saying imports, which eat into growth, were a little slower than had been thought, gaining 4.6 percent, not 6.0 percent.

Government spending, however, was also revised down a bit down to show a gain of 0.7 percent instead of 1.2 percent.

"It underscores a story of robust growth in the US economy with pretty good momentum," said BMO Financial Group analyst Sal Guatieri.

The report showed "plenty of momentum" in business investment, partly reflecting low interest rates and renewed confidence in the economic expansion, Guatieri said.

"I think business investment will remain strong in the year ahead."

Consumer spending, which accounts for two-thirds of US economic activity, also showed the impact of low interest rates and strong income growth, helped in part by net jobs growth.

"This report just re-affirms to us that the US economy has pretty solid foundation for continued growth ahead," Guatieri said.

He forecast 4.0-percent growth in the final quarter of 2004.

In 2005, the economy would likely slow to a still solid 3.7 growth pace as the impact of low interest rates and heavy tax cuts waned, he said. Drags on growth would include the lack of tax cuts, higher rates and higher energy costs.

Despite rising interest rates, housing was likely to remain healthy, he said.

"Unless they rise a another couple of percentage points, we don't see a marked slowdown in the housing in the housing industry. We are not too worried about a marked slowdown in the housing industry next year, possibly in 2006 we will get a pull back to normal levels of activity."

In an encouraging sign for consumer spending, major US retail chains reported Monday a pre-Christmas spending rush.

Sales jumped 1.6 percent in the week ending December 18, adding to a rise of 1.2 percent the previous week, according to a survey by the International Council of Shopping Centers (ICSC) and UBS Warburg.

Compared to a year ago, sales were up 3.5 percent.

On Friday, the White House predicted economic growth at a 3.5 percent pace in the last quarter 2005 after an expected 3.9 percent this year.

The unemployment rate was projected to gradually decline from 5.4 percent of the labor force now to 5.3 percent next year, 5.2 percent in 2006 and to 5.1 percent in 2007 and later years.

The US economy has churned a net 185,000 new jobs per month on average during the first 11 months of 2004, the White House said, quoting Labor Department data.

Job growth during the four quarters of 2005 was expected to be about 175,000 per month.

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