Impressive economic growth

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The Commerce Department reported Wednesday that the economy grew at an upwardly adjusted annual rate of 4.3 percent during the July-September period. It was the 10th consecutive quarter during which the annualized growth rate has registered at least 3.3 percent. Over the same two-and-a-half-year period, the U.S. economy has grown at an average rate of 4.1 percent a year.

Final sales, which removes the change in private inventories from GDP and thus offers an even better indication of growth trends, rose by an even more impressive 4.7 percent during the third quarter, following a roaring 5.6 percent increase during the April-June period. It is also worth noting that the third-quarter performance included the first month following Katrina's Aug. 29 devastation of the energy-intensive Gulf Coast region. The resulting oil-and-gas supply shock caused energy prices to soar, but there appeared to be little adverse impact upon the quarter's growth rate. Indeed, America's economic performance over the past two-and-a-half years has been all the more remarkable considering that the period's 4-percent-plus annual growth rate has had to overcome rising crude-oil prices, which have doubled over the period from less than $31 per barrel (refiner acquisition cost) in March 2003 to more than $61 this past September.

Beyond the seemingly irrepressible consumer, whose outlays increased by 4.2 percent during the third quarter, business investment spending jumped by 8.8 percent. Over the last 10 quarters, business spending has increased by more than 24 percent, rising at an annual rate of nearly 10 percent.

Since nonfarm payrolls essentially bottomed out during the summer of 2003, the rise in employment has been as impressive as the economy's growth rate. Average monthly nonfarm payrolls during the third quarter of 2005, for example, exceeded their levels two years earlier by more than 4 million workers. Over the same period, nonfarm business productivity increased by 5.2 percent. Thus, the rise in employment has been accompanied by an even greater surge in productivity.

Despite skyrocketing oil prices during recent years, the Commerce Department's third-quarter report reveals that the Federal Reserve so far has succeeded in preventing energy-sector price inflation from spilling over into the rest of the economy. The core personal-consumption-expenditure price index, which excludes the volatile energy and food sectors, increased at an annual rate of 1.2 percent during the third quarter. That represents a welcome deceleration from the 1.7 percent annualized rate for the second quarter.

With an economic growth rate above 4 percent, an overall GDP inflation rate below 3 percent for the year and an unemployment rate currently at 5 percent, the performance of the U.S. economy has understandably been the envy of the developed world.