US GDP growth slowed in the third quarter of the year, expanding at an annualized rate of 1.5% according to the advance estimate – sharply down from the second quarter’s 3.9%. Consensus estimates were for GDP to grow by 1.6%. The slower growth was attributed to a downturn in private inventory investment, which deducted 1.44% from GDP growth in the July-September quarter.
Exports also slowed as the combination of a strong dollar and weak overseas demand held back export growth. However, a deceleration in imports helped offset most of the negative impact of weaker exports growth on GDP.
Private consumption expenditure continued to expand at a robust pace and was up at an annualized rate of 3.2%, slightly down on the previous quarter’s 3.6% rate. If the cutbacks on inventory build-up by businesses prove temporary as expected, fourth quarter growth should bounce back strongly, with the solid pace of growth in consumer spending expected to continue into the next quarter.
The latest weekly initial jobless claims, also out today, underlined the strong recovery in the US labor market, which has helped sustain household consumption. Initial jobless claims rose by 1,000 to 260k in the week ending October 24. But this was still below forecasts of 263k and below the 300k level that economists consider consistent with a healthy jobs market.
The slightly weaker-than-expected GDP number is unlikely to worry the Fed as consumer spending shows no signs of waning just yet. However, low inflation remains a problem for Fed policymakers, who might have been slightly disappointed by the third quarter PCE price index, which fell to 1.2% from 2.2%. Estimates were for the index to increase to 3.2%. The core PCE price index, which excludes food and energy, also fell, declining to 1.3% from 1.9% in the previous quarter. The personal consumption expenditure measure of inflation is one of the gauges closely looked at by the Fed for setting monetary policy.
The dollar rose against the yen after the data to climb to 121.08 yen in late European session as the slightly disappointing figures were not enough to alter investors’ views that the Fed could raise rates as early as December. The euro fell to 1.0924 dollars but rebounded to 1.0960 dollars after German flash inflation data came in slightly above estimates. Meanwhile, the pound rallied to 1.5312 dollars to recover most of yesterday’s losses.