U.S. GDP Growth Disappoints In Third Quarter

By John S. McClenahen Prior to yesterday's numbers from the U.S. Commerce Department, economists generally figured that U.S. gross domestic product had grown at a 3.6% to 3.7% inflation-adjusted annual rate during this year's July-through-September calendar quarter. In fact, GDP grew more slowly, according to the first run through the numbers by Commerce's Bureau of Economic Analysis (BEA). Real GDP -- the total of goods and services produced by labor and property located in the U.S. -- increased at an annual rate of 3.1% in the third quarter, says BEA. In contrast, GDP grew at only a 1.3% annual rate in this year's second quarter. As they decide whether or not to lower U.S. short-term interest rates at their next scheduled meeting on Nov. 6, the issue for Chairman Alan Greenspan and his colleagues on the Federal Open Market Committee will be what weight to give to GDP numbers. Growth of 3.1% is hardly a signal to cut the federal funds rate, now 1.75%, by 25 basis points let alone the 50-basis-point cut that has been whispered about the past few days. However, many economists expect U.S. GDP growth to slow to 2.5% or less in the current quarter. For example, Jerry J. Jasinowski, president of the Washington, D.C.-based National Association of Manufacturers, expects "about 2%" GDP growth. And the normally bullish Bruce Steinberg, chief economist at Merrill Lynch & Co., New York, figures GDP will grow at only a 1.5% rate. Steinberg foresees the current quarter being soft for capital spending, particularly in the wake of September's 12.6% plunge in non-defense capital-goods orders. Big gains in capital spending "are unlikely" until the spring or summer of 2003, says Steinberg.

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