Are gray skies clearing up?

You could say that the economy picked up a little in the last quarter. The Associated Press reports:

The economy grew at a scorching 7.2 percent annual rate in the third quarter in the strongest pace in nearly two decades. Consumers spent with abandon and businesses ramped up investment, compelling new evidence of an economic resurgence. The increase in gross domestic product, the broadest measure of the economy’s performance, in the July-September quarter was more than double the 3.3 percent rate registered in the second quarter, the Commerce Department reported Thursday. The 7.2 percent pace marked the best showing since the first quarter of 1984. It exceeded analysts’ forecasts for a 6 percent growth rate for third-quarter GDP, which measures the value of all goods and services produced within the United States.

Reason for celebration? Absolutely. Does this mean the economy is going to start generating more jobs? Slate’s Daniel Gross is skeptical:

It would be hard for the economy not to surge when you consider how much money the administration has poured into it in the form of tax cuts and government spending. It remains to be seen whether the economy can produce jobs and growth without continual booster shots, and whether the massive deficits the administration is running will drag down growth for years to come…. So, we might well be on the cusp of a period of above-trend growth, low interest rates, and booming asset values—the likes of which we haven’t seen since, well, the late ’90s. Or we may be muddling through an extended period in which we have some good quarters, some bad quarters, and the occasional great one—just as we have for the past few nonbooming years. As the most recent GDP release shows (see Table 1 in the link) the economy has occasionally performed impressively—5 percent growth in the second quarter of 2002 and 4 percent in the fourth quarter of 2002—only to lapse back into subpar numbers. It could be that the third quarter’s reputed 6 percent growth, aided substantially by higher government spending, and tax cuts, and rebates, just isn’t sustainable.

Irwin Stelzer also sounds some cautionary notes. I understand their wariness, but a closer look at the third-quarter data suggests that much of this concern is misplaced. For example, on the role of government spending, the AP report observes, “Federal government spending, which grew at a 1.4 percent rate, was only a minor contributor to GDP in the third quarter. Spending on national defense was flat.” Clearly, the tax cuts played a more important role, but the Financial Times suggests that business investment is just as important:

Growth was led by continued strong consumer activity, aided by low borrowing costs and the Bush administration’s tax cuts. Consumer spending rose by 6.6 per cent. Business spending rose by 11.1 per cent, the strongest rate of growth since before the dotcom bubble burst. Equipment and software spending led the way, up 15.4 per cent. Economists said GDP growth was particularly impressive given the continued fall in inventories, a negative for the headline number. “This bodes very well for output in the coming quarter as stocks are replenished,” said Adam Cole, strategist at Credit Agricole Indosuez. “Overall, the data are clearly encouraging for growth – not just in the quarter just ended, but also going forward.”

Is 7.2% growth sustainable? of course not. But, if the FT is correct that “growth is expected to cool to about 4 per cent in the final quarter of the year,” that is sustainable. Hey, if Brad DeLong is optimistic, then so am I. UPDATE: James Joyner makes a great point that really applies to all presidents:

Obviously, if this trend continues, it will help President Bush next November–especially if it manifests in substantial job creation. Does he deserve much credit for the turnaround? No. But, then, he didn’t deserve much blame for the preceding slump. Such is politics.

Indeed. ANOTHER UPDATE: More good news!! Megan McArdle links to this story, which summarizes this World Economic Forum report, which highlights the comparative strength of the U.S. economy.