BBC NEWS Americas Africa Europe Middle East South Asia Asia Pacific
BBCi NEWS   SPORT   WEATHER   WORLD SERVICE   A-Z INDEX     

BBC News World Edition
 You are in: Business  
News Front Page
Africa
Americas
Asia-Pacific
Europe
Middle East
South Asia
UK
Business
E-Commerce
Economy
Market Data
Entertainment
Science/Nature
Technology
Health
-------------
Talking Point
-------------
Country Profiles
In Depth
-------------
Programmes
-------------
BBC Sport
BBC Weather
SERVICES
-------------
EDITIONS
Tuesday, 26 November, 2002, 15:40 GMT
US economy storms ahead
Shoppers in Toys R Us, New York
Shoppers are still spending in the run-up to Christmas
Strong government spending, higher domestic investment and buoyant car sales have combined to make the US economy grow at an annual rate of 4% in the three months of July, August and September.

This is well above the Commerce Department's first growth estimate of 3.1% published a month ago, and three times the rate for the April to June period.

The good news was compounded by consumer confidence figures which suggested a rebound in optimism in November, after five months of decline.

However, many analysts say the rate of expansion for the country's gross domestic product (GDP) will not be sustainable.

Nonetheless, overall prospects for the US economy are good, following the US central bank's decision at the beginning of the month to cut interest rates sharply - by half a percentage point to a 40-year low of 1.25%.

War worries

Low interest rates are one of the factors driving the recovery, with sales of new homes boosting the economy.

Consumer spending rose 4.1%, more than double the rate during the three months to June.

But economists warn that the momentum of growth is fading fast. Forecasters at the National Association for Business Economics cut their forecast for growth during the last three months of 2002 to just 1.4%, well down from their 2.7% estimate two months ago.

Experts point to data from October which suggest lower car sales and weaknesses in manufacturing.


This comback....signals a brighter holiday spending season than was anticipated only a month ago

Lynn Franco, Conference Board

There are also worries about the economic impact of a possible war with Iraq.

Alan Greenspan, the governor of the Federal Reserve, recently warned of the economy's "current soft spot", arguing that this month's rate cut would be enough of a jolt to keep economic growth on track.

And President Bush is believed to be preparing a new tax cut package to put to the Republican-controlled Congress when it takes its office in Janaury to provide a boost to the economic recovery.

Optimistic shoppers

Despite the uncertain backdrop, figures from US research group the Conference Board suggested consumers' faith in the economy was returning.

The Consumer Confidence index, based on a survey of 5,000 US households, rose to 84.1 points in November, from 79.6 in October. This was the first rise after five months of falls.

"This comback....signals a brighter holiday spending season than was anticipated only a month ago," said Lynn Franco, the Conference Board's head of research.

Consumer spending accounts for two-thirds of the US economic activity and the forthcoming Christmas trading period is a crucial time for boosting annual retail revenues.

Hoping for a prosperous Christmas

Overall, though the data confirm that the United States is once again the growth engine of the Western world, with both Japan and much of Europe in the economic doldrums.

However, this is not without risk. The United States runs a $400bn trade deficit with the rest of the world, and Asian countries in particular have been keen to boost exports.

And consumer confidence is still fragile, with the Conference Board's index still below September's reading of 93.7 points, despite November's lift.

A recent 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.

And the high debt levels in the consumer and corporate sector could prove a severe burden should interest rates have to rise.

Corporate investment is still weak, with businesses not investing in new factories, although there were some signs of recovery in spending on equipment like computers.

Speaking to the BBC, Hewlett-Packard boss Carly Fiorina said that she believed there would only be a modest (2-3%) recovery in spending on computer equipment in 2003.


Economic indicators

Fears and hopes

US Fed decisons

IN DEPTH
See also:

25 Nov 02 | Business
26 Nov 02 | Business
21 Nov 02 | Business
07 Nov 02 | Business
07 Nov 02 | Business
31 Oct 02 | Business
23 Oct 02 | Business
Internet links:


The BBC is not responsible for the content of external internet sites

Links to more Business stories are at the foot of the page.


E-mail this story to a friend

Links to more Business stories

© BBC ^^ Back to top

News Front Page | Africa | Americas | Asia-Pacific | Europe | Middle East |
South Asia | UK | Business | Entertainment | Science/Nature |
Technology | Health | Talking Point | Country Profiles | In Depth |
Programmes