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8/29/2003

The Coming Economic Doom Boom
The New York Times reports the U.S. economy is showing unexpected strength

The economy grew at a revised annual rate of 3.1 percent in the second quarter, the government reported yesterday, and the unexpected strength led economists to raise their forecasts for the rest of the year.

Among the positive signs in the report were the continued strength of consumer spending; the rebound of capital investment by businesses; the leanness of business inventories, which fell; and a jump in corporate profits. A surge in military spending connected with the war in Iraq was also a big contributor to second-quarter growth.

Inflation, as measured by one of the price monitors included in the new data from the Commerce Department, is still low, showing an annual rate of only 0.7 percent in the quarter. Analysts said this low level should prompt the Federal Reserve to keep its target for short-term interest rates low until the economy was back on its feet.

"So far the data have been pretty encouraging," said Richard Berner, chief United States economist at Morgan Stanley, who said that third- quarter growth could now be as high as 5 percent, a full percentage point above his current forecast. James E. Glassman, senior United States economist at J. P. Morgan, said, "We see a pretty nice story building up behind the scenes.

"What is impressive about this number is the strength of final demand," which grew at a 4 percent rate in the second quarter, Mr. Glassman said. His current forecast of 4.5 percent growth this quarter "should be higher," he said. "When you see strong demand and falling inventories that tells you the business community has been surprised by demand," Mr. Glassman added. That means restocking of inventories should provide a lift to growth this quarter.

The 3.1 percent growth rate, which is adjusted for inflation, is up from the Commerce Department's initial estimate of 2.4 percent growth in the gross domestic product, which measures the output of goods and services in the United States.
Get out yer hip-waders, there's sure to be a river of tears from the pack of Democrats running for president - as headlines like this one in the Chicago Sun Times can only help President Bush's re-election chances: Economy Shows Strength.