The US economy notched up another quarter of exuberant growth with little sign of price or wage pressures in the three months to September, confounding fears that the record-breaking expansion would soon end in an inflationary bust.
Stock and bond markets celebrated the news, which reduced the likelihood of an interest-rate rise next month by the US Federal Reserve. The Dow Jones Industrial Average rose strongly and closed up 227.64 last night at 10,622.53.
In the bond market, the benchmark 30-year Treasury bond gained 0.96 7/8 to 98.21 7/8, pushing its yield down to 6.257 per cent.
President Bill Clinton described the combination of rapid growth and low inflation as "virtually unprecedented in our time".
The Commerce Department reported that gross domestic product grew at a seasonally adjusted annual rate of 4.8 per cent in the third quarter of the year. It was the 10th time in the past 12 quarters that the real growth rate has been more than 3 per cent.
Labour cost pressures, a key determinant of inflation trends, eased in the same period, even as demand and output surged. The Labor Department reported that its employment cost index, a widely-watched measure of wage and benefit costs for employers, rose by a seasonally adjusted rate of 0.8 per cent in the third quarter, after a jump of 1.1 per cent in the previous three months.
The figures meant that, in spite of another year of rapid economic growth, total labour cost pressures have softened slightly. In the year to September, total employment costs rose by 3.1 per cent, the Labor Department said, compared with 3.7 per cent a year ago.
The benign inflation picture was reinforced in the GDP report. The main measure of overall inflation in the economy - the GDP deflator - was up in the third quarter at an annual rate of just 0.9 per cent, the lowest quarterly figure in a decade.
The easing in wage and benefit pressures stems in part from a slowdown in the rate of increase in consumer prices. Last year's global financial crisis depressed world prices and wage settlements tied to prices drifted lower. The recent pick-up in prices may put pressure on wages.
The tame inflationary conditions owe much to some important changes in underlying US economic performance, notably in the technology sector, that have lifted productivity, taking pressure off prices.
Strong growth in GDP in the third quarter was led by a leap in private sector investment and a sharp rise in federal government defence spending. Private consumption remained strong and exports rose strongly
In a further indication that long-term changes may have raised US economic performance, the Commerce Department yesterday published revised esti mates for US GDP growth over the past 40 years.
By counting spending on computer software as an investment, the figures show that GDP growth in the 1990s was faster than thought - averaging an annual rate of 3.6 per cent between 1992 and 1998, and not the 3.2 per cent previously reported.
