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Thursday, 31 October, 2002, 13:51 GMT
US economy surges ahead
Shoppers in Toys R Us, New York
Shoppers are still spending in the run-up to Christmas

The US economy posted its strongest growth since the last quarter of 2001, allaying fears of a "double-dip" recession.

Pushed higher by strong car sales, the US economy expanded at an annual rate of 3.1% in the three months of July, August and September.

This was double the rate of the previous three months.

But US Commerce Secretary Don Evans said that was "not good enough" and that the US recovery was still "uneven.

And he implicitly called for a rate cut by the US central bank, arguing that low inflation created an opportunity for stimulative fiscal and monetary policies.

Some of the growth was due to declining imports, according to the US commerce department.

US President George W Bush
Bush may benefit at mid-term elections
"The largest contributors to the step-up were an acceleration in consumer spending - especially for motor vehicles - and a slowdown in imports," it said.

This could spell trouble for other countries who have been hoping to overcome their own economic troubles by exporting to the United States.

Boost for Bush

The US runs a $400bn trade deficit with the rest of the world, and Asian countries in particular have been keen to boost exports.

Momentum faded almost completely away in September

Carl Stone, Nomura Securities
The news will help President George W. Bush, who is hoping to regain control of both Houses of Congress in the mid-term elections which take place on Tuesday, 5 November.

The news will also pose a dilemma for the US central bank, the Federal Reserve, which had widely been expected to cut interest rates for the 12th time next Wednesday to help revive the economy.

Now they will closely watch the unemployment figures, out on Friday, for signs that job fears might weaken further consumer spending plans.

Many believe that the burst in economic growth is only temporary, and that the US economy will begin slowing down again in the autumn.

"The vast majority of the growth was in July and some of August, and we know from auto retail sales and auto sales report .. that momentum faded almost completely away in September." said Carl Stone of Nomura Securities.

Fragile confidence

The current figures demonstrate the key role consumer spending plays in the US economy, with new incentives to buy new cars helping to spur growth - at least temporarily.

Consumer spending makes up two-thirds of the economy, and earlier this week new figures showed that consumer confidence had slumped dramatically.

There are still fears that, going forward, consumer confidence will fall further, creating difficulties for the economy.

Consumers are facing the prospect of paying off the large debts they accumulated during the boom years of the l990s, as well as increased fears about job layoffs.

A new poll by the New York Times indicated the depth of the problem, and the growing anxiety of the workforce.

For the first time in two decades, the majority of workers said they would join a union to protect their jobs and working conditions.

And 70% said the economy was worse than two years ago, with 39% fearing it could get worse as opposed to just 13% who thought it would get better.

Anger over corporate scandals

Part of the concern among the workforce relates to anger over recent corporate scandals.

Another poll found that only 33% of workers thought that top executives were interested in doing a good job for their company, as opposed to 58% who said they were only looking out for themselves.

The Democrats have a narrow advantage as the best party to look after the economy.

But so far that advantage has been overshadowed by the issue of the Iraq war, where the Republicans have more support.

Economic indicators

Fears and hopes

US Fed decisons

See also:

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