The US economy awakened: economic observation

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Last updated at: (Beijing Time) Tuesday, November 04, 2003

The US economy awakened: economic observation

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The US Department of Commerce announced on Oct. 30 that the GDP for the third quarter this year registered an increase of 7.2 percent in terms of annual rate, the most robust quarterly growth since the first quarter of 1984. Not only the American government and economic community hailed the surprise, but also the American faultfinding media this time, which unanimously gave it a rapturous applause. The United Press described it as a "stride forward" instead of "a trudge" for the US economy. The "New York Times" asserted that it brought hopes to "the final recovery of economic chronic disease". And Washington Post cheered that it was the first time that American economy is running at top gear forward as never seen years before.

It is true that the US economy had suffered from slump for too long. It wobbled in 2002 after it was out of the recession in Nov. 2001. There had been high expectation for the first two quarters of this year. But a respective increase of 1.4 percent and 3.3 percent only served to make the rebound hardly felt, just as a Chinese saying goes, "hearing the stairs squeak and creak, but seeing nobody come down". Now, finally, American economy has "wakened up from its sound slumber".

The increase for the third quarter doubled that of the previous one and even outran analysts' estimates of 6 to 7 percent. Here lie the three major reasons for the leap.

First of all, the decisive stimulation comes from individual consumption. The Americans have much money in their purses due to the tax rebates in July and August launched in line with the third round of sweeping tax cuts program put into effect by the Bush administration early this year. In addition to that, Fed, the America's central bank, pegged the interest rate down at one percent, the lowest in 45 years, thereby creating a favorable financing environment. People felt free to spend money. The individual spending for the third quarter soared to 6.6 from 3.8 percent in the second quarter. Spending on durables experienced a further rise of 26.9 percent on the basis of the rise of 24.3 percent in the previous quarter. The 20.4 percent increase of housing spending alone contributed a percentage point to the growth of American economy. American people are so generous with their money spending for such major possession as housing and cars, let alone other minor ones. Spending on non-durables was up 7.9 percent for the second quarter, a multifold rise as compared with that in the previous quarter, the highest in over the past 27 years.

The second driving force is the business circle, which unloaded the negative mentality, making them jerked up. For two years, the reluctance for investment by America's businesses has seriously dampened the US economic recovery. Fortunately, the situation turned around in the third quarter. Thousands of enterprises threw off their worries about the future and launched out into expansion. The enterprises' investment on non-housing fixed assets multiplied by 11.1 percent in the third quarter, a stark progress as compared to the 7.3 percent increase in the previous quarter. Investment on equipment and software leaped by 15.4 percent, much higher than 8.3 percent in the first quarter, except for a 2.4 percent drop in the investment for workshops.

Thirdly, export expansion contributed a lot to this economic rebound. American economy is taking a turn for the better and so are the economies of other countries. This in turn has spurred up the US export. The third quarter saw an increase of 9.3 percent for the export of American goods and services while import only moved up a measly 0.1 percent. The contraction of trade deficit was favorable for the overall economic growth.

The Bush administration is beyond doubt greatly cheered up at the better-than-expectation economic performance in the third quarter. At present, Iraq under the control of the US troops has landed America in a difficult plight and dragged down Bush's public support poll. Given this situation, a robust economic growth has constituted a generous "bestowal". On Oct. 30 president Bush said with great joy that his tax cuts package was taking effect and that they spared more money to the American people who in turn were pushing the American economy forward. Mr. Snow, secretary of treasury, hastened to echo by saying that the report of the ministry of commerce was quite encouraging and the US economy was steering toward the right direction.

A majority of economists agreed that the outstanding performance for the third quarter is an important sign indicating a solid all-round upswing of American economy. It augurs two spotlights: one is the synergy of individual consumption and business investment to put impetus into the economic growth, being the first since the recession in 2001 and the other is the alleviation of deflation pressure which has kept the Fed in anxiety. The inflation went up from one percent for the previous quarter to 1.7 percent for the third quarter. However, it is not possible for American economy to enjoy an always 7 percent growth in every quarter and the rise for the fourth quarter is estimated to be down to 4 percent. What's more, the unemployment is still hovering at as high as 6.1 percent. All this shows that it is of utmost importance for the Bush administration to secure a sustained strong economic growth and at the same time lower the ratio of unemployment.

Article from People's Daily, Nov. 3, edited and translated by PD Online staff member Lijia

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