WASHINGTON — Overcoming a devastating hurricane season and a sharp increase in gasoline prices, the U.S. Gross Domestic Product — an economic bellwether — grew at an annualized rate of 4.1 percent in the third quarter, the Commerce Department reported Wednesday.
That growth was less than the 4.3 percent foreseen in last month’s preliminary numbers, but still considered strong by economists.
However, there is concern about an acceleration in inflation, especially as this fall’s increases in fuel prices work their way through the supply chain, said John Mothersole, senior economist at the research firm Global Insight.
For now, inflation is in check. Excluding energy and food items, retail prices on all goods and services inched up 0.2 percent last month.
Still, it is costing consumers more to fuel their cars and heat their homes, which next year might tamp down discretionary spending on items such as apparel. A gallon of regular gas cost an average of $2.21 Wednesday, up from $1.81 a year ago, the American Automobile Association said.
Aside from fuel, the housing market might also make life more difficult for retailers next year.
“Home equity loans have been one of the chief pump primers in the strength of consumer spending for the last two to three years, and we believe that it is likely to end in 2006 because of the rise in interest rates and a little bit of a pullback in housing markets,” said Mothersole.
Overall, increases in business spending will help balance the drop off in consumer spending, he said.
By the traditional benchmarks — good GDP growth, high productivity, low inflation and a 5 percent unemployment rate last month — the economy looks strong, said Thea Lee, policy director in the AFL-CIO’s legislation department.
However, the traditional measures aren’t telling the entire story, Lee said.
“We’re coasting on borrowed money and that can’t go on forever,” she said, pointing to growing poverty, stagnant real wages, increasing debt and a trade deficit on track to top $700 billion this year. “For the average worker, this is not a strong economy,” she said.
However, Tim Kane, an economist at the Heritage Foundation, a conservative think tank, said the trade deficit, while not a sign of strength, was insignificant and counterbalanced by foreign investments in the U.S.
This story first appeared in the December 22, 2005 issue of WWD. Subscribe Today.
“I look at how much we can produce and the fact is there’s one variable that matters there and that’s technology,” Kane said. “Technology is going through a second major renaissance — the first one was the Industrial Revolution. There’s an information technology revolution and it’s self-sustaining.”
Just as the Internet has shortened supply chains, he said new forms of retail technology will boost the productivity of the American worker and the nation’s GDP.
“The housing sector might cool, interest rates are being inched up,” Kane said. “Those are signs of how much gas or brakes are [being] applied. They are not signs of how strong is the engine and the engine’s incredibly strong.”