Real incomes actually fell and it will be hard for consumers to keep spending more if they are not earning more.Remember, too, that these figures are looking backwards. If you look forwards you can see some tentative signs that the housing boom is coming to an end, as Capital Economics notes in a paper last week. There has been a sharp fall in the rate of growth in new house prices, which could be a leading indicator for what might happen to house prices more generally. These are the first GDP figures for the quarter and figures do get revised. There were also some special features: car-buying boomed in the summer as manufacturers pushed smaller vehicles and slashed the prices of gas-guzzlers.
It won't stop the Fed raising interest rates by another quarter per cent next Tuesday, but borrowers can be comforted by the fact that further rises will be limited as long as the rise in energy prices does not feed though into more general inflation.Now you have to be careful about all this. The annual increase is only 3 per cent, which is the lowest for more than 20 years This will give comfort to the Fed. Alan Greenspan puts a lot of weight on the employment cost index, as this is the best overall measure of wage pressure. The headline figure for consumer price inflation is nearly 5 per cent, which is pretty shocking, but core inflation is much lower. Housing did well, too, down on the first half of the year but up on last autumn. Government spending? Well, you would expect that to be up, but so too is business investment. This is pretty balanced growth, driven, it is true, by consumption because that is 70 per cent of total demand, but with other sectors also rising - even exports (not shown) were up a bit too.There was also some good news on Friday on inflation: wage growth remained very low.
So how has the economy been damaged? Hardly at all - to judge by the first set of figures for the economy out on Friday. Indeed, far from slowing, it actually picked up speed in the July-September quarter to reach 3.8 per cent annual growth. So, under what circumstances will this great growth run end - and more generally, what drives economies nowadays and what brings them to a halt?As anyone who has visited the US in recent months will testify, the spend, spend, spend culture is deeply embedded You can see that in these latest figures. Far from weakening, domestic consumption actually rose in the third quarter, rising at nearly 4 per cent (see bar chart). Hurricane Katrina brought devastation and a rise in energy prices. These hit an economy already facing a sustained increase in interest rates, one that the markets expect will continue next week Tough stuff.