Moving Along
Subject Recession, Recovery
Topic Productivity and Growth
Key Words Recession, Unemployment, GDP
News Story

The Commerce Department reported that its final estimate of third quarter growth in gross domestic product (GDP) was a 4 percent annual increase. Third-quarter growth was considerably higher than the 1.3 percent increase for the second quarter, or the 1.3 percent decrease from the third quarter of last year. Analysts attribute the strong third quarter results to consumer spending. Whether economic growth will continue at this rate or slow is a matter of some concern. Evidence from the last months of 2002 suggests that spending has indeed slowed and a hoped-for Christmas surge in spending did not materialize.

Sagging business investment continues to be a trouble spot as far as spending is concerned. Spending on plant and equipment dropped 0.8 percent in the third quarter, the eighth consecutive quarterly decline in such spending. Alan Greenspan, chairman of the Federal Reserve, believes that uncertainty about a possible war with Iraq may be responsible for the decline. Mr. Greenspan said, "Any significant fall in the current geopolitical and other risks should noticeably improve capital outlays, the indispensable spur to a path of increased economic growth."

Consumer spending increased at an annual rate of 4.2 percent in the third quarter. Auto sales were particularly strong because of zero-percent financing and other incentives that dealers were offering. In the second quarter consumer spending increased a modest 1.8 percent.

There was other positive news about the economy. The Conference Board released its Index of Leading Indicators, a measure of the future course of the economy over the next three to six months. November's index was up 0.7 percent, which is an indication of a healthy economy in the second quarter of 2003. October's increase was 0.1 percent.

(Updated February 5, 2003)


What percent of GDP is attributable to consumer spending? What percent is attributable to business investment?

2. The article states that business investment is lagging in part because of risks associated with a war with Iraq. Consider oil as one resource that might be affected by a war. What could happen to the price of oil? How would that impact most businesses?
3. What is the Index of Leading Indicators? What does an increase in the index mean for GDP?
Source Reuters, "Growth Set Strong Pace On 3rd Quarter," The New York Times, December 21, 2002.

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