ECONOMY SOARS, BUT ... 7.2% INCREASE IN NATION'S GDP MAY NOT MEAN NEW JOBS IN CALIFORNIA.
The nation's economy expanded at the fastest rate since 1984 during the three months ended in September, the government reported Thursday, offering hope that the long economic malaise has finally ended.
But whether the 7.2 percent jump in gross domestic product brings new jobs to California remains a puzzle for now, said Ed Leamer, an economist at the Anderson School at the University of California, Los Angeles.
``It's amazing to get this kind of economic growth without job growth. We should have had job growth this quarter to justify the enormous growth,'' he said.
Nationally, consumer spending soared, foreigners bought American-made goods at a surprising clip and companies increased their investments in equipment and technology at a pace reminiscent of the late 1990s boom.
``It looks like the economy is shrugging off its lethargy,'' said Richard D. Rippe, chief economist of Prudential Equity Group. ``But there are some parts of this that are not sustainable.''
In all, the nation's gross domestic product grew at an annual rate of 7.2 percent during the third quarter, according to the Commerce Department, which adjusts its numbers to take into account inflation and normal seasonal fluctuations.
In two other quarters since 2001, the economy expanded at least 4 percent, only to fall back into a slump that made companies reluctant to hire new workers and helped create the worst loss of jobs in 20 years.
California's budget crisis could see some easing if growth continues at around 4 percent, said Howard Roth, an economist at the California Department of Finance.
``It could improve the revenue growth. You'll see something from the third quarter in sales taxes and in personal income taxes,'' he said.
In California, personal income taxes typically supply twice the revenue that sales taxes do, he said.
The possibility that growth is finally fast enough, and broad enough, to create jobs offered a salve to the White House. President George W. Bush and his aides have repeatedly said the series of tax cuts passed since he took office would eventually revive growth.
``The tax relief we passed is working,'' Bush said while visiting an aluminum company in Columbus, Ohio.
``We cannot expect economic growth numbers like these every quarter,'' he added, but ``we're on the right track.''
Tax cuts, a home refinancing binge and incentive-driven auto sales all contributed to the growth.
``For a long time I've been saying consumers have a high debt burden,'' UCLA's Leamer said, ``so this quarter is a real surprise to me.''
Without job growth, it's unclear where consumers' future dollars will be coming from.
``The president's plan props up economic growth in the short term,'' said Sen, Kent Conrad, D-N.D., ``and undermines economic growth in the long term.''
``There are consequences to spending more money than you take in,'' Conrad said.
The Commerce Department's report - the latest in a line of encouraging signs - is likely to allay fears among some at the Federal Reserve that three years of weak growth have left the economy vulnerable to
deflation, a sustained period of falling prices.
Prices for consumer goods rose at an annual rate of 2.4 percent during the quarter, up from an increase of 0.8 percent during the second quarter.
The Federal Reserve has kept its benchmark short-term interest rate at just 1 percent, its lowest level since 1958, partly to ward off deflation, which has afflicted Japan recently. On Tuesday, the Fed announced it planned to keep interest rates low for a ``considerable period.''
``There are a thousand problems that remain,'' said Robert J. Barbera, chief economist of ITG/Hoenig, an investment firm. ``But the No. 1 problem - Would we end up like Japan because no amount of stimulus could get us out of this? - has been resolved.''
The 7.2 percent growth in the third quarter was well above Wall Street's expectations, and bond prices fell as investors expected the economy to continue expanding more quickly than it had early this year.
Thursday afternoon, the price of the Treasury's benchmark 10-year note was trading down about a third of a point, pushing its yield up to 4.34 percent, from 4.30 percent late Wednesday.
But the stock market appeared to discount the report of strong economic growth and closed mixed on the day.
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|Publication:||Daily News (Los Angeles, CA)|
|Article Type:||Statistical Data Included|
|Date:||Oct 31, 2003|
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