Thursday, October 30, 2003

WASHINGTON — The economy grew at a scorching 7.2 percent annual rate in the third quarter in the strongest pace in nearly two decades. Consumers spent with abandon and businesses ramped up investment, compelling new evidence of an economic resurgence.

The increase in gross domestic product (search), the broadest measure of the economy's performance, in the July-September quarter was more than double the 3.3 percent rate registered in the second quarter, the Commerce Department (search) reported Thursday.

The 7.2 percent pace marked the best showing since the first quarter of 1984. It exceeded analysts' forecasts for a 6 percent growth rate for third-quarter GDP, which measures the value of all goods and services produced within the United States.

The economy's recovery from the 2001 recession has resembled the side of a jagged cliff; a quarter of strength often has been followed by a quarter of weakness. But analysts are saying that pattern could be broken, considering increasing signs the economy finally has shaken its lethargy and is perking up.

Near rock-bottom short-term interest rates, along with President Bush's third round of tax cuts, have helped the economy shift into a higher gear during the summer, economists say. The next challenge is making sure the rebound is self-sustaining, they say.

Democrats, however, argue that the tax cuts contributed to a record budget deficit in the recently ended 2003 fiscal year and have done little to spur significant job growth.

Although the nation's payrolls grew by 57,000 in September — the first increase in eight months — the economy needs to add a lot more jobs than that each month to drive down the 6.1 percent unemployment rate, analysts have said.

The administration has argued that as economic growth improves, meaningful job creation will follow. Bush will be counting on that as he heads into the 2004 presidential election season.

In other encouraging economic news from the Labor Department (search), new claims for unemployment benefits last week dropped by 5,000 to 386,000, a sign that layoffs are slowing. U.S. workers' wages and benefits went up by 1 percent in the third quarter, up slightly from a 0.9 percent increase in the previous quarter.

Amid signs that the recovery is regaining traction, the Federal Reserve on Tuesday decided to hold a key short-term interest rate at a 45-year low of 1 percent. Super-low short-term rates may give consumers and businesses an incentive to spend and invest more, boosting economic growth.