Path: bloom-picayune.mit.edu!snorkelwacker.mit.edu!americast.com!americast.com!americast-post Newsgroups: americast.twt.news From: americast-post@AmeriCast.Com Organization: American Cybercasting Approved: americast-post@AmeriCast.com Subject: GDP does number on skeptics Date: Wed, 28 Oct 92 15:01:10 EST Message-ID: \SE A \HD GDP does number on skeptics \SH Key indicator's 2.7% increase delights Bush \BY Anne Veigle \CR THE WASHINGTON TIMES The Commerce Department reported yesterday that the nation's economy grew at a surprisingly robust annual rate of 2.7 percent in the third quarter, stunning Wall Street analysts who had predicted a much smaller gross domestic product. The closely watched economic indicator - the last major report to be released before the Nov. 3 election - gave President Bush some sorely needed good news to boast about in the final days of his campaign. "If you think I'm happy, you're right," the president said in an interview on NBC's "Today" show. He pointed out that the report marks the official turning point for the economy, which has now surpassed the growth levels recorded before the recession began during the third quarter in 1990. But many economists viewed that assessment skeptically, with some suggesting the economy may slow again during the fourth quarter. "This is weird. This is bizarre. This doesn't look anything like a normal recovery," said Robert Brusca, chief economist with Nikko Securities, a New York investment banking firm. "Now we know who's been inhaling what Bill Clinton didn't smoke." Wall Street economists had been predicting only a 1.5 percent gain in the gross domestic product, which measures the output of the nation's goods and services. The 1.5 percent gain, which would have matched the second-quarter growth rate, was based on employment and industrial production figures. "The 2.7 percent growth figure comes as employment is virtually flat and wages are continuing to recede," said Mickey D. Levy, chief economist and senior vice president of CRT Government Securities in New York. "It will be a hard sell for Bush to get any mileage out of it." Commerce Department officials attributed the better-than-expected performance in GDP to a surge in consumer spending, which jumped 3.4 percent over the second quarter. Mr. Brusca and other economists were sharply critical of that estimate. "It defies everything we know and have studied," Mr. Brusca said. "I think it's absolutely ludicrous." "Consumers spent money they didn't have, so it's not sustainable," said Lacy H. Hunt, chief economist with HSBC Group in New York. He pointed out that yesterday's report showed a decline in the nation's savings rate from 5.3 percent in the second quarter to 4.5 percent in the third. Commerce Undersecretary J. Antonio Villamil defended the numbers, saying they are based on "solid data, not assumptions." While the figures are preliminary estimates that are scheduled to be updated, he said he didn't expect to see a substantial change in the reported 2.7 percent GDP gain. Gains in government spending, including a 6.9 percent increase in military spending, helped boost the GDP, government officials said. While much of the strength in yesterday's GDP report relies on gains in consumer spending, which constitutes two-thirds of the nation's output, another report released yesterday cast doubt on whether consumers will continue strong buying patterns into the fourth quarter. The Conference Board reported yesterday that its consumer confidence index registered a fourth consecutive monthly drop in October, falling to 53.0. The survey, based on a sample of 5,000 households across the nation, showed that the majority of respondents reported that jobs were hard to find. "Consumer confidence is quite low, but it doesn't matter what the level of consumer confidence is," said John M. Albertine, president of a Washington-based economic forecasting firm. "What's happening here is consumers have put off purchases and they can no longer do so." But consumer spending is not likely to continue unless wage gains are assured, and a separate government report released yesterday showed that Americans' wages, salaries and benefits posted the smallest gain in five years in the 12 months ended Sept. 30. The Labor Department said its Employment Cost Index, considered a highly accurate measure of wages, salaries and benefits, slowed to a 3.5 percent advance in the year ended in September. From an economic standpoint, however, the slowdown in wages shows that the U.S. economy is continuing to win the battle against inflation. According to the GDP report, consumer prices increased at a 2.4 percent rate in the third quarter compared with 3.2 percent in the second. The 2.4 percent level was the lowest rate of increase in six years, Commerce officials said. "Low and declining inflation is a positive development for sustained growth," Mr. Villamil said. "Subdued inflation encourages declines in market interest rates, improves the price competitiveness of our goods in foreign markets and generally promotes an efficient allocation of resources." This article is copyright 1992 The Washington Times. Redistribution to other sites is not permitted except by arrangement with American Cybercasting Corporation. For more information, send-email to usa@AmeriCast.COM