Gross domestic product – the value of goods and services produced in the country -- expanded at a seasonally adjusted annual rate of 1.5% in the July-September period, the Commerce Department said Thursday. Economists surveyed by Bloomberg expected 1.6% growth.
The economy surged at a 3.9% pace in the second quarter on solid consumer spending and business investment, releasing pent-up demand after harsh weather and a West Coast ports slowdown held growth to a meager 0.6% in the first quarter.
But a slowdown was expected as a rising dollar made U.S. exports more expensive for foreign buyers and cheaper for U.S. consumers, adding to the trade gap and to weak overseas demand accentuated by China's economic slowdown. The global troubles, along with low oil prices that have curtailed drilling activity, drove down stocks in late summer and dampened business investment and consumer confidence.
Businesses added far more slowly to inventories, subtracting a whopping 1.44% from growth in the third quarter. Business investment, particularly in construction, also slowed, rising 2.9%, compared to 5.2% in the second quarter. Equipment spending held up well, increasing 5.3%.
The dollar posed another hurdle. Exports increased 1.9%, down from 5.1% in the previous quarter, while imports increased 1.8%.
And government spending edged up 1.7%, compared to 2.6% in the earlier period.
Consumer spending helped offset those drags, rising a surprisingly solid 3.2% despite the market volatility. Consumer purchases comprise more than two thirds of the economy and have perked up in response to cheap gasoline, solid job gains and reduced household debt. But payroll growth slowed dramatically in August and September and retail sales recently softened.
That's raising questions about whether growth will pick up again in the fourth quarter as many economists had expected. Yet stocks have rallied in recent weeks. And on Wednesday, the Federal Reserve, citing a generally improving economy, signaled it could raise interest rates for the first time in nearly a decade at its December meeting.
"The economy is in better shape than captured in the growth of real GDP," economist James Marple of TD economics wrote in a note to clients. "The headline masks solid strength in domestic demand that has historically been the best predictor of future GDP growth."
