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Economy Has Strong Showing in Summer

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[November 29, 2007]  WASHINGTON (AP) -- The economy barreled ahead in the summer, growing at a 4.9 percent pace. The performance was the strongest in four years, but isn't expected to last through the current quarter amid the continuing housing slump and credit crunch.

The Commerce Department's new reading of the gross domestic product from July through September, released Thursday, was even better than the government's initial estimate of a brisk 3.9 percent growth rate for period. Stronger U.S. exports to overseas buyers and more inventory investment by businesses were the main reasons for the improvement.

The big pickup in GDP, though, didn't change the picture forming in the current October-to-December quarter. And that scenario is somewhat grim, with indications the economy will lose considerable steam. Growth is expected to slow to a pace of just 1.5 percent or less in the final three months of this year.

GDP is the value of all goods and services produced within the United States and is the best measure of the country's economic health.

The upgraded GDP figure for the third quarter matched economists' forecasts. The strong showing suggested that the economy was resilient even as the housing market plunged deeper into turmoil and credit problems intensified. Federal Reserve officials and other economists -- looking at fresher barometers of economic activity -- have warned that the economy is in for a rough patch.

There have been mounting signs in recent weeks that the housing and credit problems are affecting the behavior of consumers and businesses alike.

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Spending by consumers and businesses is the lifeblood of the country's economic activity. The big worry for economists is that consumers and businesses will cut back on spending and investing, dealing a blow to economic growth. The odds of a recession have grown this year. Still, Fed officials and many other economists remain hopeful the country will weather the financial storm without falling into recession.

The Fed has sliced interest rates twice this year -- in September and late October -- to keep the housing collapse and credit crunch from throwing the economy into a recession. Fed policymakers at the October meeting signaled that further rate reductions may not be needed. Since then, however, financial markets have suffered through another period of turmoil. The housing slump has deepened, consumer confidence has sunk and shoppers are flashing signals of caution.

Against that backdrop, investors and some economists believe the Fed might lower rates when they met on Dec. 11.

[Associated Press; By JEANNINE AVERSA]

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