Tribble Agency
Tribble Agency


WRAPUP 3-Inventories hurt United States third-quarter GDP, domestic demand strong

Growth in the United States economy dropped by more than 50% in the third quarter of the year, according to official figures. The study notes healthcare spending accounted for 18.2 percent of the US gross domestic product in July, and national health spending in August 2015 was 5.7 percent greater than health spending in August 2014. Excluding food and energy, prices increased at a 1.3 percent pace, slowing from a 1.9 percent rate in the second quarter.

Stable job growth in 2015 and cheaper prices at the pump have helped cushion Americans' pocketbooks, supporting the household spending that makes up the biggest share of US growth. The drag from inventory, however, is unlikely to persist, and economists anticipate growth will pick up in the fourth quarter.

Still, the unspectacular overall growth is the latest worrying sign that the economic expansion may be fizzling. However, strengthening Reuters' case is real final sales of domestic product - GDP after inventory adjustments - which came in at 3.0%, and 2.9% to domestic purchasers.

"Underlying growth is still strong, or at least, strong enough to handle interest rates not being at emergency low levels anymore", said Jennifer Lee, a senior economist at BMO Capital Markets in Toronto. While payrolls advanced at a slower pace than forecast in August and September, the pace of hiring this year has averaged 198,000 a month, beating the annual average for seven of the 10 years through 2014.

One of the factors that have depressed growth has been a widening trade deficit. Exports grew in the third quarter but at a subdued pace, likely reflecting weaker foreign demand. Imports, which subtract from output, increased 1.8%.

"The deceleration in real GDP in the third quarter primarily reflected a downturn in private inventory investment and decelerations in exports", the department said in its quarterly statement.

No word yet on how the Federal Reserve will take the news. But the Fed signaled that it could raise rates for the first time in almost a decade when policymakers meet again in December.

The Fed last night described the U.S. economy as expanding at a "moderate" pace and put a December rate hike on the table with a direct reference to its next policy meeting.

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