South-Western College Publishing - Economics  
A Growing Surprise
Subject Economic Fluctuations and Growth
Topic Productivity and Growth
Key Words Gross Domestic Product, Unemployment, Inflation
News Story

The Commerce Department reported that U.S. economic growth rose strongly for the third quarter of 1998. Gross Domestic Product (GDP) rose at a robust 3.9 percent seasonally adjusted annual rate for the July through September period. The growth was higher than expected. Turmoil in world financial markets had caused many analysts to predict a 3.3 percent increase.

Strong consumer spending drove the increase in GDP in the third quarter, as had been the case throughout the year. Consumer spending, which accounts for about two-thirds of all economic activity, grew at an annual rate of 4.1 percent. The government also reported that spending on durable goods rose 2.4 percent in the quarter. Net exports of goods and services reduced GDP growth by 0.4 percent, or $8.7 billion.

The economy is still on its record-breaking course. The record for the longest post-war economic expansion occurred between 1961 and 1969 and coincided with the Vietnam War buildup. The Reagan era expansion lasted for 92 months. The current period of economic growth started in April 1991 and, if it continues, will pass in January the Reagan era expansion. One indication of continued growth is the Conference Board's report that its index of U.S. consumer confidence rose in November.

There continues to be good news on the inflation front. The GDP price deflator grew at a 0.8 percent annual rate in the third quarter, down from the 0.9 percent rate in the first and second quarters. The low inflation rate has allowed the Fed to cut interest rates three times in the past three months.

However, there are possibly some clouds on the horizon. The Commerce Department reported that after-tax corporate earnings fell 1.8 percent, and profits were down 6.2 percent from last year's third quarter report. Concerns about profits slowed capital spending, while further signs of an economic slowdown include an increase in inventories and a fall in factory orders for big-ticket goods.

(Updated January 1, 1999)


1. How is GDP calculated?
2. How do exports and imports affect the GDP calculation?
3. What is the GDP price deflator?
4. How is the GDP price deflator constructed?

Source "U.S. Economy Posts Surprising Growth", International Herald Tribune, November 25, 1998

Return to the Productivity and Growth  Index

©1998  South-Western College Publishing.  All Rights Reserved   webmaster  |   DISCLAIMER