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Business investment in equipment and software increased in the third quarter, as inflation-adjusted U.S. gross domestic product increased 3.7 percent, after increasing 3.3 percent in the second quarter, according to estimates by the U.S. Bureau of Economic Analysis. The trade balance picture also improved during the third quarter.
"The report by the Commerce Department that the economy grew by 3.7 percent in the third quarter, up from 3.3 percent in the second quarter, reflects gathering strength in manufacturing," said John Engler, President of the National Association of Manufacturers.
According to the report, pickups in consumer spending, business equipment investment and goods exports led to a 4.2 percent increase in final sales of domestic products, excluding changes in inventories. "The GDP report is very good news for manufacturers," Engler said. "The 4.6 percent increase in consumer spending was the fastest in a year and shows conclusively that the second quarter slowdown was just a temporary pause.
"Better still, the duel recoveries in capital spending and exports, so critical to manufacturing, remain on track," Engler said. "Business spending on equipment and software increased by 14.9 percent in the third quarter. This brisk pace shows that as we head toward the new year, business confidence in the economy is strong and getting stronger."
The Commerce Department report said the export of goods, mainly manufactured products, accelerated at a 7.8 percent pace in the third quarter and actually outpaced the gain in imports for the first time this year. "Exports have increased for five consecutive quarters as the overvalued dollar moves back toward more normal levels and economies overseas continue to grow," Engler said. "I expect this picture to continue to improve, and for the trade gap to begin to narrow in 2005."
Engler noted that the recent spike in energy prices was taking a toll on manufacturers but had not generated significant inflationary pressure. "Overall, inflation increased by just 1.3 percent in the third quarter and core consumer prices, which exclude food and energy, edged up just 0.7 percent in the third quarter. 'This is good news and is an early indicator that strong productivity is continuing to keep labor costs and overall inflation under control. This should give the Federal Reserve pause before considering a rate increase when it meets next month."
'Capital equipment spending for machinery and computers drove growth in manufacturing durable goods orders in September,' said Daniel J. Meckstroth, Chief Economist for the Manufacturers Alliance/MAPI. 'Machinery orders are up 19 percent this year versus one year ago and demonstrate that business is confident enough about the outlook to replace and expand their productive capacity. The September advance report on durable goods is comforting news amid the worries over high oil prices and natural disasters that dominated the news during that month.'