Robust consumer spending on cars, furniture and food in the third quarter helped the US economy advance more quickly than first thought, a government report showed on Tuesday, while underlying inflation was the tamest in decades. The Commerce Department said gross domestic product, the measure of all goods and services produced within US borders, grew at a 3.9 percent annual pace in the three months from July through September, up from 3.7 percent estimated a month ago.
Another report from the Conference Board highlighted the potential for softer growth in 2005, however, as its gauge of consumer confidence slipped to an eight-month low 90.5 in November from 92.9 in October.
The main cause appeared to be a scarcity of jobs, stemming from strong growth, as the percentage of people reporting jobs "hard to get" climbed to 28.1 percent from 27.9 percent in October - possibly foreshadowing spending caution ahead.
The GDP report, the second of three government estimates, beat Wall Street economists' predictions that the third-quarter advance would be unchanged from the first snapshot at 3.7 percent.
The gain marked the sixth successive quarter GDP has expanded at a rate exceeding 3 percent, implying healthy and sustainable growth.
SHOPPERS SET PACE: Consumers ratcheted up spending at a 5.1 percent annual pace, more than three times the 1.6 percent rate of the second quarter and the strongest since a 7 percent surge in the fourth quarter of 2001. Consumer spending accounts for more than two-thirds of the $11-trillion US economy.
Analysts said the GDP report was a reassuring sign that growth was on a safe track and added that it gave the Federal Reserve leeway to keep raising interest rates without fear of choking off growth.
Separately, the National Association of Purchasing Management said business activity in the Midwest picked up for a 19th straight month in November. Its Chicago business barometer, which includes a basket of measures ranging from new orders to hiring, eased to 65.2 from 68.5 in October. Any reading over 50 signals expansion.
"The economy seems to be running at a 4 percent growth rate and that is what this number is pointing out," said Tim Mazanec, a currency strategist with Investors Bank and Trust in Boston. "This should not persuade the Fed to change their measured rate-hike moves."
NO PRICE FEARS: Inflation data within the GDP report suggested the Fed has little to fear from price pressures.
A key price gauge favoured by Fed Chairman Alan Greenspan - the personal consumption expenditure index excluding food and energy costs - rose at a mild 0.7 percent rate in the third quarter, the smallest pickup since a 0.5 percent gain in the fourth quarter of 1962.
US central bank policy-makers next meet December 14 to mull interest-rate strategy. They have lifted short-term borrowing costs at each of their last four gatherings and many economists expect another increase from a still-low 2 percent federal funds rate.
The relatively strong GDP number initially helped the battered dollar regain some ground against the euro, but by mid-morning its relative value had slipped once more to a new low. Bond prices were weaker on the expectation of more Fed interest rate rises and stock prices also fell.
The Commerce Department said damage wreaked by four major hurricanes cut some $80 billion from US corporate profits in the third quarter. After tax, profits fell 2.0 percent in the period, following a 0.7 percent decline in the second quarter.
Business spending on capital equipment remained vigorous, with non-residential investment - seen as a proxy for overall corporate investing - accelerating to a 12.9 percent rate of advance from 12.5 percent in the second quarter.
Equipment and software spending, associated with rising productivity since it involves upgrading computers and increased automation, shot up at a 17.2 percent rate.
Companies added to inventories at a $35.9-billion annual rate during the third quarter, down from $61.1 billion in the second quarter.
Analysts welcomed this, since lean inventories mean less overhang of unsold goods to rein in future production.
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