Spending Thaws After Slow Spring

Above-average economic growth from 2004 to 2005 is anticipated in spite of slower growth late in the spring, which dropped the second-quarter economic growth rate to 3% from over 5% compared to the previous year.

Spending in June was especially weak, a result of several simultaneous factors. Consumers had finished spending their windfalls from the federal income tax reduction, and they had cut "cash out" mortgage refinancings by almost half as interest rates rose. Cutting back to accommodate gasoline prices that rose as much as 30%, consumers deferred some summer shopping and vacation spending (the unseasonably cool, wet weather didn't help, either). These negatives are all behind us now.

The new anticipated growth should lead to progressive gains in marketing spending and new business formation, both strong stimulants to printing. Consumer spending growth paused briefly, but has now resumed expanding at a pace consistent with GDP growth of more than 4%. A 4%-plus GDP growth trend is assured by current lean inventories, weakening dollar, expanding exports to a rapidly growing world economy, rising consumer confidence, and double-digit growth in capital investment.