Money Matters - Simplified

U S Economy does well despite Hurricanes

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Washington(24x7updates) -- Economic activity grea at an annual rate of 3.8 percent in the third quarter, providing vivid evidence of the economy’s stamina even as it coped with the destructive forces of hurricanes.

Ahead of a further expected increase in US interest rates from the Federal Reserve on Tuesday, the data also offered reassuring news on inflation, with price pressures still muted despite soaring oil prices.

Economists said that the buoyancy of yesterday’s GDP report suggested that the US economy already had substantial momentum before the hurricanes struck and should continue to see robust expansion in the final quarter of the year.

The US Commerce Department said it was unable to separate out the full economic effects of the hurricanes. But it estimated that the storms probably wiped billion (£22.5 billion) off US incomes from lost wages and rents, so that third quarter growth would have been even more potent without this blow.

Growth in personal disposable income slowed to 2.8 percent from 4.9 percent. Adjusted for inflation, disposable income fell 0.9 percent after increasing 1.5 percent in the second quarter. Some of the decline was attributable to lost rental and business income on the coast of the Gulf of Mexico after Katrina and Rita lashed the region. The personal saving rate fell to minus 1.1 percent, from 0.1 percent.

In another report released yesterday, the Labor Department said that the employment cost index, which is composed of wages, salaries and benefits, rose 0.8 percent in the third quarter from the second quarter. Adjusted for inflation, however, the index was down 1.5 percent from September 2004, with the wages and salary portion dropping 2.3 percent.