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Thursday, October 28, 1999 Published at 13:16 GMT


Business: The Economy

US growth speeds up

The build up of inventories contributed to the strong growth

The US economy came roaring back with 4.8% growth in the third quarter.

This is more than double the rate of growth seen in the second quarter.

US stock markets rallied on news that the employment cost index ( ECI), which measures the pay and benefits of US workers, rose by only 0.8%. The Dow Jones industrial average rose 177 points to 10,572 in early trade.

Analysts had expected the index to rise by 0.9%.

In the second quarter, the ECI rose by 1.1%.

Consumer spending boom

Consumer spending and a build-up of the inventories held by businesses contributed to the strong growth.

Consumer spending in the third quarter rose by 4.3%, down slightly from the 5.1% growth in the second quarter. Businesses, encouraged by the consumer spending, increased their inventories by $28bn in advance of the Christmas holiday season.

Analysts had expected growth of 4.7%.

In the second quarter, growth was hampered by the rising US trade deficit.

Interest rate worries

The data calmed fears of an interest rate increase.

Joshua Feinman, chief economist at Deutsche Asset Management said: "The inflation story is great and that's reassuring."

The two sets of data will feature prominently at the policy meetingsof the US central bank, when they decide the future level of interest rates.

Federal Reserve policy makers next meet on 16 November.

At its last meeting, the bank decided to keep interest rates unchanged at 5.25%, signalling its faith that inflation was under control.

But it said it was adopting a "bias towards tightening," which means it expects the next move in interest rates to be higher.



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