Tags: GDP | Rises | Again | 3.3

GDP Rises Again - to 3.3

Friday, 30 September 2005 12:00 AM

The much-maligned U.S. economy just seems to keep chugging along, oblivious to the many naysayers.

Pegged against a 3.3% growth rate in gross domestic production, the economy picked up steam in the quarter thanks to increased consumer spending and a slight surge in home construction. The rate was exactly what a Bloomberg News survey of 65 economists predicted. It was the thirteenth straight quarter of 3%-plus economic growth for the United States.

The economy did slow somewhat from a first-quarter GDP rate of 3.8%.

Many economists believe that early indicators for the third quarter don't look favorable for the short term, with high energy prices and the fallout from Hurricanes Katrina and Rita negatively impacting growth. Higher fuel costs could be especially problematic, forcing consumers to tighten spending just as the crucial holiday shopping season begins.

"The second quarter ended strongly, with consumer spending being boosted by a surge in motor vehicle sales," Steven Wood, president of Insight Economics LLC in Danville, Calif., told Bloomberg on Sept. 30. "With the negative short-term effects from Hurricane Katrina and the associated spike in energy prices, the third quarter will finish with very little momentum."

Bloomberg also reports that GDP rose to $11.1 trillion when annualized and adjusted for inflation. Without adjustment, the economy grew at a 6% annual pace to $12.4 trillion for the quarter, compared with 7% in the previous three months.

New home construction rose by 10.8% during the quarter, revised from the 9.8% pace estimated in August. The personal-consumption expenditures price index - a measure tied to consumer spending - rose 3.3% compared with 3.2% estimated last month and 2.3% in the first quarter, Bloomberg reports.

But the forecast isn't as rosy for the third quarter.

Bloomberg says that the rise in gasoline prices over a six-week period in August and September hit personal income hard, taking a 1% bite during that time period. Global Insight, a business consultancy in Massachusetts, says that higher energy costs are setting the average American household back $60 per month.

"The U.S. economy will see a ‘significant dip' in growth the rest of the year because of the recent hurricanes and the surge in fuel costs, though inflation will probably stay under control," Federal Reserve Bank of San Francisco President Janet Yellen said in a speech in London Sept. 27.

Higher prices at the pump fueled an upsurge in late credit card payments in the second quarter of 2005, the American Bankers Association reported on Wednesday.

The ABA said that the seasonally adjusted percentage of credit card accounts 30 or more days past due rose to 4.81% in the April-to-June quarter.

That number was up from a delinquency rate of 4.76% in the first quarter and was the highest since 1973, the year the ABA began tracking U.S. credit card payment activity.

"Gas prices are taking huge chunks out of wallets, leaving some individuals with little left to meet their financial obligations," he said. "With gas prices still rising, the third quarter is not likely to be any better."

Additionally, past-due payments on home equity lines of credit - the lowest delinquency rate category - increased to 0.43% from 0.40%.

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Methods of solving debt problems:

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An important industry barometer is projecting an 8% increase in employer-sponsored healthcare costs for 2006.

Per employee, healthcare costs will rise an average of $597 for a total of $8,424, according to the 2006 Towers Perrin Health Care Survey.

The predicted growth rate roughly matches that of 2005 and slightly improves on the runaway double-digit inflation of 2001 through 2004.

"We're not seeing much relief in terms of absolute dollars," says Ron Fontanetta, principal with Towers Perrin Health and Welfare practice. "This issue has moved from being a crisis to a chronic condition. Even with single-digit increases, this number is unsustainable."

Still, the news isn't all bad, Towers Perrin suggests.

The survey reveals a wide differential between companies with the highest ($10,000) and lowest ($6,866) healthcare expenditures. Companies most successful in curtailing costs can be emulated for some superior practices, such as aggressively managing vendors, promoting generic drug use and engaging employees.

The study also says that while the average cost of healthcare coverage will increase by $597 per employee in 2006, this figure would have been closer to $750 were it not for employer efforts to aggressively manage program performance through vendor selection and performance management, prescription drug expenditures, care management, employee engagement and other initiatives.

According to the Towers Perrin study, employers continue to shoulder the majority of the burden. Employees on average will pay $155 more in 2006, representing a 10% increase from the year before. Employers, on the other hand, will see an increase of $442 per employee, absorbing 74% of the total cost increase. Overall, employers will pay 80% of premium costs and employees will pay 20%. 

The survey also reinforces the sentiment that healthcare costs are spiraling way out of control. Employees are paying 64% more in healthcare costs today than they spent five years ago, while employers are paying 78% more.

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The much-maligned U.S. economy just seems to keep chugging along, oblivious to the many naysayers. Pegged against a 3.3% growth rate in gross domestic production, the economy picked up steam in the quarter thanks to increased consumer spending and a slight surge in home...
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2005-00-30
Friday, 30 September 2005 12:00 AM
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