US economy slows to 1.5% growth in third quarter

  • Business
  • Thursday, 29 Oct 2015

WASHINGTON: The US economy grew at a slower pace in the third quarter as exports and private inventory investment fell, but crucial consumer spending remained strong, the Commerce Department said Thursday.

Gross domestic product expanded at an annual rate of 1.5% in the July-September period, the department said in its first estimate for the quarter.

The reading came in slightly weaker than analysts expected, but the economy was widely expected to have cooled down from the second quarter’s robust 3.9% expansion.

Growth in the economy has been volatile this year, with the first quarter mustering only a 0.6% rise amid severe winter weather and a West Coast ports shutdown.

“That subpar number should not be mistaken for slower underlying growth. Much of the weakness stemmed from the onset of a long-awaited correction to private inventories,” said Nariman Behravesh, chief economist at IHS.

In a positive sign, the third-quarter growth mainly reflected solid consumer spending, which accounts for two thirds of US output, as consumers found themselves with a lot more disposable income than in the second quarter.

Consumer spending rose 3.2% in the third quarter, a tad less than the second quarter’s increase. But disposable personal income jumped 3.5%, nearly three times the gain in the second quarter, suggesting a promising set-up to the upcoming holiday shopping season.

A downturn in private inventory investment was a large drag on GDP, the department said, noting declines in investment in wholesale trade and in manufacturing.

Trade growth slowed. Exports rose 1.9%, compared to the 5.1% increase in the second quarter.

Imports, which take away from GDP growth, were also slower, rising 1.8%, nearly half the prior quarter’s increase.

The GDP data came a day after the Federal Reserve signaled it could raise its near-zero interest rate in December if it decides the economy is strong enough to weather the tightening.

“The slowing had been flagged well in advance by the monthly business surveys and higher frequency data, and is therefore unlikely to have a major impact on policymaking,” said Chris Williamson of Markit.

“Instead, the Fed will be firmly focused on how the fourth quarter is playing out, writing off some of the third-quarter weakness as temporary.”   

Consumer prices weakened substantially under pressure from falling oil prices. 

The personal consumption expenditures price index, the Fed’s preferred inflation measure, rose at an annual rate of 1.2% in the third quarter after a 2.2% rise in the prior quarter.

Stripping out food and energy prices, core PCE prices rose 1.3%, well below the Fed’s 2.0% inflation objective. - AFP

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