I put these two articles together to juxtapose what a non-partisan financial paper says about the economy and what the liberal New York times owned Boston Globe has to say and what the Democrats have to say.
Both from the same day.
Article Title: "Compelling Signs Of Resurgence "
Author: JED GRAHAM Section: Business & The Economy Date: 10/31/2003
The U.S. economy grew at its fastest pace in nearly 20 years last quarter as tax cuts and low interest rates helped fuel gains in consumer spending and housing construction.
But the expansion was broad-based, with business investment surging at rates not seen since early 2000 and exports adding to growth for just the second time in the past 10 quarters.
The nation's gross domestic product rose at a 7.2% annual rate, more than double the 3.3% rise in the second quarter and the biggest gain since the first quarter of 1984, the Commerce Department said Thursday. Economists expected a 6% gain.
While experts expect much smaller GDP gains this quarter, the economy's momentum, low inventory levels and more indications the job market is improving all point to solid growth through the better part of 2004.
"All parts of the economy were firing on all cylinders" last quarter, said Bob Gay, head of global fixed income research at Commerzbank Securities and a former Federal Reserve economist.
But the impressive 7.2% GDP gain "is much more than a big number," Gay said. "The mix of growth is very constructive for some continued momentum in U.S. output."
Consumer spending, which accounts for two-thirds of the economy, rose at a 6.6% pace last quarter, the biggest gain since the third quarter of 1997.
The gains were led by durable goods spending, which rose at a 26.9% rate, after a 24.3% increase last quarter. Increased motor vehicle output alone added 1.17 percentage points to GDP growth in the third quarter.
Meanwhile, spending on nondurable goods rose at a 7.9% pace after a 1.4% gain in the second quarter. Services outlays rose 2.2%, up from 1.4%.
The spending was fueled by gains in disposable income, which rose 7.2% in the third quarter after a 2.6% gain in the second.
The big difference was the tax cuts. Lowered withholding rates and child tax credit rebates cut personal tax by 32%, or $100 billion at an annual rate, in the quarter, Commerce said.
"Americans have more cash in their pockets after taxes, and they spent it," Gay said.
The good news for future growth is that the surge in spending wasn't completely expected, so companies once again had to dig into inventories to keep up with demand. Businesses reduced inventories by another $35.8 billion, subtracting 0.7 percentage point from third-quarter GDP. That followed the second quarter's $17.6 billion decrease in inventories.
"Combined with strong new orders, this bodes well for increasing production going forward" and should give a boost to fourth-quarter growth, wrote Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson.
Export growth also is a good sign for domestic output. But Gay expects that the decline in imports was temporary and will reverse as firms need to increase depleted inventories.
Even more encouraging than the surge in consumer spending was the acceleration in business investment, Wesbury said. "The tax cuts provided incentives for businesses to increase investment - which is the real indicator that the recovery is here to stay," he wrote.
Business investment in equipment and software rose 15.4%, up from 8.3% in the second quarter and the fastest since a 15.5% gain in the first quarter of 2000.
High-tech investment jumped 18.3%, Wesbury noted. Even taking into account a 2.4% decline in commercial construction, fixed nonresidential investment rose 11.1%. Meanwhile, residential investment soared 20.4%.
As yet, most capital spending seems to be going more on efficiency-raising equipment than on investment for boosting capacity that would necessitate increased hiring, Gay says.
But the job market continues to show signs of firming. Labor Department data also out Thursday showed last week's jobless claims fell to 386,000 from an upwardly revised 391,000. The four-week average dipped 4,750 to 388,750, the lowest since the week of February 1 and a level consistent with net hiring.
One factor holding back job growth has been unusually strong productivity gains. And Stuart Hoffman, chief economist at PNC Financial Services, expects productivity grew an "extraordinary" 7% to 8% in the third quarter.
But those kind of gains should subside and give way to job growth, he says.
Hiring typically lags a rebound in sales growth by three months, and that's been the case this year, as a June sales rebound led to hiring in September, says Commerzbank's Gay.
The strong economic growth in the third quarter "sets in stone some renewed hiring by employers," he said, predicting "at least six months of hiring on the back of this one quarter's performance."
Gay is forecasting that the economy added at least 100,000 jobs in October, and he expects a half-million new jobs over the next six months.
Growth will slow this quarter as the stimulus from tax credits and mortgage refinancing fades. But Gay notes the tax cuts and refinancing "were permanent reductions in our overhead."
Hoffman expects the best holiday shopping season since 1999 and solid growth of 3.5% to 4% for the next three or four quarters.
Democrats dismiss data on economic growth under Bush
Say job recovery is key indicator
By Anne E. Kornblut, Globe Staff, 10/31/2003
WASHINGTON -- After months of hammering President Bush over the sluggish economy, Democrats faced a startling political development yesterday: The economy has surged in recent months, growing at an annual rate of 7.2 percent, according to new data released by the Commerce Department.
Democratic candidates for president quickly dismissed yesterday's news as irrelevant. What matters most, they said, is the number of people still without jobs.
Republicans also tried somewhat to downplay the positive third-quarter report, expressing doubts that the robust growth rate -- the highest in nearly two decades -- would continue in the next quarter without the onetime child tax credit to boost spending.
But for both sides, the economic news prompted an immediate flurry of political activity, turning the focus away from the war in Iraq for the first time in days.
And for once, Republicans, including Bush, led the way in publicizing the economic news -- shedding some of their worries that the economy could sink the president as it did his father in 1992.
"The US economy surged ahead at the fastest pace since 1984 in the third quarter of this year!" the Bush-Cheney campaign crowed in an e-mail to supporters. Other Republican officials seized on the numbers as evidence that the Bush tax cut is doing its job, spurring consumer spending by "putting money in people's pockets," as the president so often says.
"That's the fastest growth we've had in nearly 20 years," Bush told a cheering crowd in Ohio during a fund-raising trip. "Exports are expanding. Investment is rising. Housing construction is growing. The tax relief we passed is working. We left more money in the hands of the American people, and the American people are moving this economy forward."
Still, Bush said: "We cannot expect economic growth numbers like this every quarter."
Democrats said that the spurt is unlikely to last -- and insisted that more improvements are needed.
"Of course, John Kerry welcomes any signs that our economy is improving," Kerry policy director Sarah Bianchi said. "However, George Bush still has a way to go to turn around the worst economic record since the Great Depression."
Senator Joseph I. Lieberman of Connecticut issued a similar statement, saying that the third-quarter gains are not enough to correct Bush's economic record.
"We've lost more than 3 million jobs. Three million people have fallen into poverty," Lieberman said. "The budget deficit and national debt are growing. Health care and college tuition costs are escalating."
Democrats, while caught off guard by the unexpected growth, believe the 6.1 percent unemployment rate, only slightly down from the decade's high, could affect the political landscape far more than any economic statistic, particularly if job losses remain high in key electoral states such as Ohio, Michigan, Pennsylvania, and Missouri.
An economic recovery isolated to California and the Northeast would be unlikely to shift presidential politics, according to Bill Carrick, an adviser to Representative Richard A. Gephardt of Missouri.
"There's a difference between the statistical analysis about the economy and how people feel about the economy," Carrick said. "If the Midwest, the industrial states, continue to have this high level of joblessness, it'll be a huge problem for them [the Republicans].
All the battleground states will be up for grabs."
Chris Lehane, an adviser to retired Army General Wesley K. Clark, said: "A jobless recovery is sort of like going on a diet and gaining weight. What's the point?"
Lehane said. "No president has ever been reelected with a net job-loss record, and no matter what economic model you're looking at, even the most optimistic Republican model, in the next year you're not going to create more jobs than the jobs that have been lost since he became president."
