US third quarter economic growth slowed to 1.5%

US economic growth slowed down in the third quarter.

GDP expanded at an annualized pace of 1.5% between July and September, down from 3.9% in the previous quarter.

The main reason for the drop was a slowdown in inventory accumulation – running down stockpiles of goods – by companies.

Nariman Behravesh, chief economist at IHS, said: “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,”

A strong US dollar hit exports, which posted a modest 1.9 percent increase, down from the 5.1 percent increase in the previous quarter. Imports also slowed, up only 1.8 per cent.

Monthly job gains dropped to 167,000 in the third quarter from 231,000 in the previous quarter.

However, consumer demand was strong and spending continued to rise at a steady rate.

Household consumption rose 3.2 percent in the third quarter, just shy of what analysts had forecast, and down from a 3.6 percent increase in the second quarter.

In addition, disposable personal income surged 3.5 per cent, almost three times the increase in the previous quarter. The jump in disposable income suggests that there will be a promising fourth-quarter shopping season.

According to The Financial Times, Gad Levanon, an economist at the Conference Board, said:

“The slow growth in GDP was largely a result of slower inventory build-up. A better gauge of the trend in current economic activity is final sales of domestic products, which held quite well at 3 per cent … Moving forward, we continue to expect US households to push GDP growth beyond its long-run trend which we estimate to be about 2 per cent right now.”

The data comes a day after the US Federal Reserve announced that it will consider hiking rates at its next meeting in December.

In its latest statement on Wednesday, the Fed said: “In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress – both realized and expected – toward its objectives of maximum employment and 2% inflation.”

Chris Williamson of Markit, commented:

“The (GDP) 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.”

“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.”