October 28, 2005


GDP muscles through: Economy brushes off storms and expands by 3.8 percent in 3Q, beating estimates. (Reuters, October 28, 2005)

The U.S. economy shook off headwinds from hurricanes Katrina and Rita to grow at a faster-than-expected 3.8 percent annual rate in the third quarter, a Commerce Department report showed Friday. [...]

Despite surging prices at the gasoline pumps, the report showed that so-called core inflation, which exempts food and energy from its calculation, declined in the third quarter. A price gauge favored by Federal Reserve Chairman Alan Greenspan -- personal consumption expenditures excluding food and energy -- increased at a 1.3 percent annual rate compared with 1.7 percent in the second quarter. That marks the mildest rate of core price rises since the second quarter of 2003.

Fed policy-makers have pushed U.S. short-term interest rates up 11 times since mid-2004 to keep a rein on prices. Its policy-setting Federal Open Market Committee is scheduled to meet again on Tuesday and is once again widely expected to nudge rates up a quarter percentage point.

Businesses reduced inventories for a second straight quarter. Stocks of unsold goods dropped at a $16.6-billion annual rate in the third quarter after declining at a $1.7-billion rate in the second quarter.

The third-quarter inventory drop was the largest since the fourth quarter of 2001 -- after the attacks in New York and on the Pentagon -- when they fell at an $86.7-billion rate, a department official said. It also marked the first back-to-back quarterly drops in stocks of unsold goods since the third and fourth quarters of 2001.

So not only is there strong growth despite the storms but no inflation despite oil prices and such low inventory that it'll have to be filled. It's not a moment too soon, and likely a bit late, to replace a Fed chairman stuck in the 70s with one who understands the 30s.

Posted by Orrin Judd at October 28, 2005 10:19 AM

OK, as you observed, the new Fed chief notches up interest rates slightly in the short term to keep the peace, and then starts to reduce them, perhaps mid-to-late '06. If we're blasting along at 3.8% now what will the growth rate be in '07? Are there enough numbers available to track the Dow?

Posted by: Luciferous at October 28, 2005 10:42 AM

I do not think the new fed dude will move rates for some time. I think Greenspan will jack them up and turn over the keys with a 'neutral' policy. I hope the jacking up process is not too abrupt as to slow us down too much.

It really is a 'just in time' swapout of fed chairmen. Absent a major terror attack, OJ's optimism for the economy is well placed.

Posted by: JAB at October 28, 2005 10:49 AM

Greenspan has two more months to throw a monkey wrench into the machinery. Can't Bush move him along a bit faster?

Posted by: erp at October 28, 2005 11:42 AM

I'm prepared to testify that Mr. Greenspan told me Valerie Plame worked for the CIA....

Posted by: oj at October 28, 2005 11:51 AM

Strange that I haven't seen it that widely reported that the budget deficit declined to 2.6% of GDP for the recently completed fiscal year, either. That's much more in line with historical averages than the 3.6% last year.

Posted by: John Thacker at October 28, 2005 2:15 PM

Thou shalt not report good economic news under a Republican administration.

If only there was some other topic the MSM could use to overwhelm it, something Martha Stewart-ish, humm, what could it be?

Posted by: Gideon at October 28, 2005 2:19 PM

Tin Soldiers and Nixon's (er, Bush is) coming...

Posted by: Dave W. at October 29, 2005 12:45 AM