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U.S. economy grew at 1.5 percent rate in third quarter

Major components of the economy such as consumer demand have held up well in recent months. [Associated Press]


Major components of the economy such as consumer demand have held up well in recent months. [Associated Press] 

Despite still-healthy spending by consumers, U.S. economic growth slowed significantly in the third quarter, the government said Thursday.

At an annualized rate of 1.5 percent, the growth tempo in July, August and September shows a marked drop from the 3.9 percent pace in the second quarter.

Wall Street had expected the Commerce Department data to show a slowdown in the third quarter, with economists looking for a growth rate of 1.6 percent before the report.

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 come in.

Much of the downshift was because of slower inventory accumulation, as businesses let stockpiles of goods in warehouses and on store shelves unwind a bit rather than making big additions as they had done in the first half of 2015.

Although the lackluster headline number will not stir much excitement, major components of the economy such as consumer demand have held up well in recent months. Consumption rose 3.2 percent last quarter.

Residential investment also remained healthy last quarter, a sign that the housing market continued to provide the overall economy with a much-needed tailwind.

"Personal consumption is the 800-pound gorilla of the economy," said Scott Clemons, chief investment strategist at Brown Brothers Harriman. "It's quite good, especially given that the recovery is a bit long in the tooth."

Indeed, the pluses and minuses buried in the details of Thursday's report highlight the contradictions that economists, Federal Reserve policymakers and ordinary consumers all have to contend with after more than six years of tepid economic growth.

Some sectors — technology, health care, finance — are enjoying conditions that echo the booming 1990s or the housing bubble of a decade ago.

Things could not be more different in areas of the economy that depend on commodity prices, like the oil and gas industry, which is cutting jobs amid a downturn in energy prices. Manufacturers, too, have felt headwinds as the strong dollar and weakness in China have hurt sales overseas.

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 are struggling.

U.S. economy grew at 1.5 percent rate in third quarter 10/29/15 [Last modified: Thursday, October 29, 2015 7:07pm]
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