U. S. economic growth cooled in the third quarter as firms
let inventories dwindle and the pace of spending on the part of consumers,
businesses and governments all decelerated. Gross domestic product, the
broadest measure of goods and services produced across the economy, advanced
at a 1.5% seasonally and inflation adjusted annual rate in the third
quarter, the Commerce Department said Thursday. That matched the forecast of
economists surveyed by The Wall Street Journal.
The July-through-September reading marks a sharp
deceleration from the second quarter, when the economy expanded at a 3.9%
rate. But the third-quarter slowdown largely reflected a change in inventory
levels, which subtracted 1.44 percentage points from the overall advance. A
measure of purchases by U.S. residents that excludes changes in inventory
levels rose at a much healthier 2.9% pace last quarter.
The signal from inventory figures can be difficult to
discern because the data is highly volatile from quarter to quarter. The latest
swing could be a correction from overproduction in the first half of the year.
But it could show soft factory output. From a year earlier, the economy
advanced 2% in the third quarter. That represents the slowest year-over-year
advance since the first quarter of 2014—showing the economy remained locked
into a modest growth rate as the expansion entered its seventh year this
summer.
The unspectacular overall growth is a worrying sign that the
economic expansion could be losing steam. While the stronger dollar and the
slowdown in China didn’t cause trade to drag on U.S. output last quarter, there
is little expectation that the global economy will support domestic growth
heading into next year. At the same time, lower gasoline prices have propped up
consumer spending, but that effect could fade a year after a big drop in oil
prices occurred.
Meanwhile, employers in recent months slowed their pace of
hiring after of adding an average of more than 200,000 jobs a month for a year
and a half. And a large number of Americans remain on the sidelines of the
labor market, and wage growth has been unimpressive, factors that could restrain
consumer spending.
Consumer spending increased at a 3.2% rate in the third
quarter, only a slight slowdown from the 3.6% advance during the prior three
months. The recent gain was led by strong spending on long-lasting goods,
including vehicles. The growth in consumption was supported by an increase in
inflation-adjusted incomes, said Paul Ashworth, economist at Capital Economics.
The latest reading on economic growth, and a subsequent
revision next month, will weigh on the minds of Federal Reserve officials when
they meet next in December. The Fed held benchmark interest rates steady on
Wednesday. The central bank said the economy “has been expanding at a moderate
pace,” while explicitly noting that will consider a rate increase at its next
policy-making meeting.
Thursday’s report showed spending on home building and
improvements rose by 6.1%, a slowdown from the roughly 10% growth rate recorded
over the prior three quarters.
Business investment advanced modestly last quarter, up 2.1%
versus 4.1% in the second quarter. Spending on construction declined, but
investments in equipment increased at a faster pace than in the spring. The
pace of spending on intellectual property slowed.
Trade was basically a neutral factor for the overall
economy, subtracting 0.03 percentage point from the growth rate. Exports, which
add to output, increased at a 1.9% rate during the quarter. Imports, which
subtract from output, increased 1.8%. Government spending, which has largely
been a drag on economic growth since 2010, advanced at an 1.7% pace in the
third quarter, a slowdown from the 2.6% gain the prior quarter. Third-quarter
spending at the state and local level offset a pull back in defense outlays.
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