Fueled by a surge in consumer spending, the U.S. economy took off in the July-September period, with growth running perhaps as high as a 7 percent annual rate, a number of economists said yesterday.
Such predictions got a boost from a Commerce Department report yesterday that retail sales grew at a 12.2 percent annual rate in the third quarter, despite a 0.2 percent decline last month. Some analysts said the federal personal income tax cut that took effect July 1 was partially responsible for the jump in spending.
"You give consumers a tax cut and they'll spend it," said Ken Mayland of ClearView Economics in Cleveland. "That's the way America works."
Several forecasters, however, also expect the tax cut's impact on spending to fade, with economic growth dropping to a still-solid 4 percent annual rate or so for the remainder of this year and next. Some economists caution that such sustained growth will depend on steady gains in business investment, which appear likely but not certain.
Ray Stone of the financial markets research firm Stone & McCarthy said that consumer spending for goods and services probably rose at about a 6.25 percent annual rate in the third quarter, after adjustment for inflation. On the same inflation-adjusted basis, the annual gross domestic product increased "at around a 7 percent pace," Stone said.
Ian C. Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., said the retail sales report "pushes our estimate for third-quarter economic growth to 7.5 percent."
Such strong growth, more than double the 3.3 percent annualized growth rate of the previous quarter, would be the fastest pace since before the 2001 recession and probably set the stage for the creation of new jobs, the analysts said.
Mayland said he is optimistic that a sustainable expansion is underway. Aside from the tax cut, wages are increasing faster than prices, and home values and stock prices are rising, all of which leave consumers well positioned to keep spending.
"Job growth, which is on the cusp of occurring, should be the icing on the cake. This bodes well not just for fourth-quarter retail sales, including the crucial holiday buying season, but for 2004 sales as well," Mayland said.
For last month alone, retail sales except those at auto dealers rose 0.3 percent. But sales of new vehicles and parts fell 1.6 percent, dragging down overall sales by 0.2 percent, Commerce said. Both changes were roughly in line with analysts' expectations.
Meanwhile, the Federal Reserve's latest nationwide survey of economic conditions confirmed a substantial pickup in growth.
Ten of the Fed's 12 regional Reserve banks, which conduct the survey, found the pace of the economic expansion had accelerated since the survey released early last month. The remaining districts, Cleveland and Boston, reported "mixed but steady levels of economic activity," the survey summary said.
Consumer spending generally strengthened, as did manufacturing in most districts, while home construction and service industries also showed improvement, the summary said.
Manufacturing employment remained weak, though "some districts note pockets of firming," it added. Most of the Fed banks said labor markets remained "slack" in their districts, with only modest increases in wages.
U.S. payroll employment increased by 57,000 jobs last month, the first rise since January. Numerous analysts said that rise could be the first of a long string. With economic growth so strong, at least for now, firms will find it hard to meet the demand for goods and services without increasing the hours their present employees are working and probably hiring additional help, the analysts said.
"Given the rate of increase in spending and output that we are now witnessing, a reasonable expectation is that firms will need to add significant numbers of workers within the next several quarters," Fed Governor Ben S. Bernanke told the Senate Banking Committee on Tuesday.
Such predictions got a boost from a Commerce Department report yesterday that retail sales grew at a 12.2 percent annual rate in the third quarter, despite a 0.2 percent decline last month. Some analysts said the federal personal income tax cut that took effect July 1 was partially responsible for the jump in spending.
"You give consumers a tax cut and they'll spend it," said Ken Mayland of ClearView Economics in Cleveland. "That's the way America works."
Several forecasters, however, also expect the tax cut's impact on spending to fade, with economic growth dropping to a still-solid 4 percent annual rate or so for the remainder of this year and next. Some economists caution that such sustained growth will depend on steady gains in business investment, which appear likely but not certain.
Ray Stone of the financial markets research firm Stone & McCarthy said that consumer spending for goods and services probably rose at about a 6.25 percent annual rate in the third quarter, after adjustment for inflation. On the same inflation-adjusted basis, the annual gross domestic product increased "at around a 7 percent pace," Stone said.
Ian C. Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, N.Y., said the retail sales report "pushes our estimate for third-quarter economic growth to 7.5 percent."
Such strong growth, more than double the 3.3 percent annualized growth rate of the previous quarter, would be the fastest pace since before the 2001 recession and probably set the stage for the creation of new jobs, the analysts said.
Mayland said he is optimistic that a sustainable expansion is underway. Aside from the tax cut, wages are increasing faster than prices, and home values and stock prices are rising, all of which leave consumers well positioned to keep spending.
"Job growth, which is on the cusp of occurring, should be the icing on the cake. This bodes well not just for fourth-quarter retail sales, including the crucial holiday buying season, but for 2004 sales as well," Mayland said.
For last month alone, retail sales except those at auto dealers rose 0.3 percent. But sales of new vehicles and parts fell 1.6 percent, dragging down overall sales by 0.2 percent, Commerce said. Both changes were roughly in line with analysts' expectations.
Meanwhile, the Federal Reserve's latest nationwide survey of economic conditions confirmed a substantial pickup in growth.
Ten of the Fed's 12 regional Reserve banks, which conduct the survey, found the pace of the economic expansion had accelerated since the survey released early last month. The remaining districts, Cleveland and Boston, reported "mixed but steady levels of economic activity," the survey summary said.
Consumer spending generally strengthened, as did manufacturing in most districts, while home construction and service industries also showed improvement, the summary said.
Manufacturing employment remained weak, though "some districts note pockets of firming," it added. Most of the Fed banks said labor markets remained "slack" in their districts, with only modest increases in wages.
U.S. payroll employment increased by 57,000 jobs last month, the first rise since January. Numerous analysts said that rise could be the first of a long string. With economic growth so strong, at least for now, firms will find it hard to meet the demand for goods and services without increasing the hours their present employees are working and probably hiring additional help, the analysts said.
"Given the rate of increase in spending and output that we are now witnessing, a reasonable expectation is that firms will need to add significant numbers of workers within the next several quarters," Fed Governor Ben S. Bernanke told the Senate Banking Committee on Tuesday.
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