More jobs may be on the horizon in Michigan thanks to a sharp increase in consumer spending, which led to the highest quarterly rate of economic growth since 1984, the U.S. Department of Commerce reported yesterday.
The nation’s gross domestic product, which is the measure of all goods and services produced in the United States, increased 7.2 percent in the third quarter, according to the report. The rise follows a 3.3-percent GDP increase in the second quarter, and it provides yet another indication that the economy may be on the path to a full recovery.
“It’s a very strong signal that we’re going to move into a period of sustained economic growth,” said Donald Grimes, senior research associate at the University’s Institute of Labor and Industrial Relations.
The job market could soon turn around if businesses begin investing on a large scale, Grimes said. He predicted that the economy could create between 100,000 and 150,000 jobs per month during the rest of this year and the start of next year.
“The kickstart should stimulate businesses to begin additional spending,” he said.
Throughout most of this year, businesses sought to increase production without hiring new workers. But as productivity reaches its limit, businesses will have no choice but to add employees if they want to continue churning out more goods, Grimes said. A 4-percent economic growth rate in the future would lead to job growth.
The main factors leading to the high rate of growth in the third quarter included personal consumption, equipment and software purchases, residential investment and exports, the Department of Commerce’s report states.
Consumer spending increased by 6.6 percent in the third quarter, including a 26.9-percent rise in spending on durable goods, which are commodities like appliances that do not wear out in a short time period. Computer purchases accounted for 0.5 percent of the GDP increase, and motor vehicles sales accounted for 1.17 percent, according to the report.
Grimes said consumer spending — which makes up about two-thirds of the total economic spending — increased because people had more money to spend due to tax cuts President Bush pushed through earlier this year and mortgage refinancing.
“They went out and spent it,” Grimes said.
In a written statement, Commerce Secretary Don Evans also credited President Bush’s economic policies for creating the conditions necessary for economic growth an a turnaround in the job market.
“Today’s strong performance shows the American economy is headed in the right direction thanks to President Bush’s Jobs and Growth Agenda,” he said. “We’re growing the American economy and soon we’ll be growing more jobs.”
But the nation still has not left the recession completely behind, and disruptive events like another terrorist attack could plunge the economy downward, Grimes said.
The possibility also exists that businesses will not invest money toward expanding their labor force, he said. In that case, yesterday’s report would be “a one-time blip and you return to stagnation,” he said.
First-year MBA student Andrew Bayley, who is also working for a chemical company, said he believes the economy will turn around in the future. But he added that he lacks confidence in optimistic economic reports because the chemical industry continues to struggle.
But consumers will keep spending if they are confident that the recession is over, Grimes said. Continued spending would lead to further economic growth, he said. “If they believe it’s real, then it becomes a self-fulfilling prophecy,” he said.
The consumer confidence index the University is expected to release today will be a good indicator of how confident Americans are that the economy is on the path to recovery.
The stock market yesterday responded to the optimistic economic report by jumping 12.08 points to close at 9,786.61. Grimes said the stock market will hold steady before beginning to increase again because investors had already anticipated positive economic results and began pumping money into stocks several months ago.