Economy Speeds Up

Idling for months, the economy finally shifted into a higher gear in the second quarter as consumers and businesses bought more and the federal government ramped up military spending on the Iraq war. The improvement reinforced the belief that the economy will pick up speed through the rest of the year.

The broadest measure of the economy's performance, gross domestic product, grew at an annual rate of 3.1 percent in the April to June quarter, according to revised figures released Thursday by the Commerce Department.

"Despite the healthier economic outlook, the Achilles' heel of the economy is lack of jobs," said Sung Won Sohn, chief economist at Wells Fargo. The nation's unemployment rate, now at 6.2 percent, could hover in that range or creep higher in coming months, economists said. This is what is most troubling to local economic development officials. They want to know "When will the jobs come?" Why so few jobs being created? Increased productivity at businesses has allowed them to produce more with fewer workers. Businesses will want to feel more secure about the rebound before they go on a hiring spree, analysts said.

Businesses increased spending in the second quarter on equipment and software at an 8.2 percent pace, up from the 7.5 percent growth rate previously estimated, and a turnaround from the cut in such spending during the first quarter of this year.

And, after six straight quarters of cutting spending on plants and other structures, businesses increased such investment in the second quarter at a 7.1 percent rate, also stronger than the 4.8 percent growth rate first estimated for the quarter.

"Businesses had been starving a lot of development spending. To see that beginning to recover is a very good sign," said Carl Tannenbaum, chief economist at LaSalle Bank.

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