Despite still-healthy spending by consumers, the American economy slowed significantly last quarter, the government said on Thursday.
At an annualised rate of 1.5 per cent, which was in line with analysts' expectations, the tempo of growth in July, August and September represents a marked drop from the 3.9 per cent pace of expansion in the spring. But the downshift last quarter was mostly caused by slower inventory accumulation, as businesses let stockpiles of goods in warehouses and on store shelves unwind rather than making big additions, as they had done in the first half of 2015. Non-farm inventories increased at half the rate they did in the second quarter, a reduction that shaved 1.44 percentage points off the overall figure for growth in the third quarter.
While the headline rate was lackluster, major components of the economy, including consumer demand and business spending on equipment, held up well in recent months. Consumption rose 3.2 per cent last quarter, compared with a 3.6 per cent advance in the spring.
Residential investment also remained healthy last quarter, a sign that the housing market, after a long period of suffering, is now providing the overall economy with a fresh tailwind.
Stocks opened slightly lower, but bond yields ticked up, a sign traders are increasingly looking at the possibility of a rate increase by the Federal Reserve in December following the central bank's decision to hold off on an increase on Wednesday. "Outside of the inventory correction, this was a solid report," said Scott Anderson, chief economist at Bank of the West in San Francisco. "It bolsters the case that we will see a bounce-back in growth," he added, noting that his firm is looking a growth rate in the current quarter of about 2.5 per cent. In terms of the drag from stockpiles, "companies scaled back their expectations," Anderson said, so the drop-off in inventories "should diminish as a headwind."
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Source: Agencies |
In a separate report from the labour department on Thursday, the government reported that new claims for unemployment benefits rose by 1,000 to 260,000 last week, less than expected. The four-week moving average for jobless claims, which can be more reliable than the week-to-week snapshot, fell to its lowest level since 1973 and suggested that hiring remained fairly strong.
Some sectors - technology, health care, finance - are enjoying conditions that echo the booming 1990s. Things could not be more different in areas that depend on commodity prices, like the oil and gas industry, which is cutting jobs.
Manufacturers that service those industries, like steel makers, have also felt a chill.
Echoing this pattern, economic conditions are best on the coasts, especially the Northeast as well as Silicon Valley, while broad swaths of the country's midsection struggle. "We've got a lot of folks moving into the Bay Area getting jobs, and you see the growing pains that come with that, like traffic and housing affordability," said Anderson. "The incubator is the tech sector, but it's broader-based than that."
At the same time, he said, "the decline in energy and commodities is having a detrimental effect on growth from Texas north to Minnesota."
Thursday's report is the first of three estimates the government will make and the numbers could be revised upward or downward as more data comes in.
While investors have generally been pleased with the moderate pace of growth in recent years, even as many workers complain about stagnant wages, Fed officials are still trying to determine when economic conditions will finally justify a long-anticipated increase in interest rates.
On Wednesday, as expected, the Fed kept short-term rates at near zero, where they have been since late 2008. But officials signalled an increase could finally come when they meet in late December, especially if economic growth and employment pick up in the fourth quarter.
For the current quarter, experts are expecting the economy to grow at an annual rate of about 2.5 per cent. One clue about whether they are right will come on November 6, when the labour department reports on hiring and unemployment in October.
"The Q3 GDP. report was soft with respect to the headline figure, but the underlying domestic demand data was in line with the pace seen in recent quarters," said Omair Sharif, rates strategist at SG Americas Securities. "On balance, this report probably does little to change the Fed's perception that the economy continues to advance at a 'moderate' pace."
©2015 The New York Times News Service
