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. Last Updated: 07/27/2016

Weak Spending Slows U.S. Growth

WASHINGTON -- Weaker consumer spending on new cars and other goods as well as a pullback in government outlays slowed the U.S. economy's growth sharply during the third quarter, the Commerce Department said Wednesday.


The nation's gross domestic product expanded at a 2.2 percent annual rate in the three months from July through September, less than half the robust 4.7 percent pace posted during the second quarter. Wall Street analysts, however, had forecast only a 1.8 percent rate of GDP growth for the third quarter.


The initial estimate of third-quarter economic performance, which will be revised twice in coming months, also showed inflation on the decline, boosting chances for steady interest rates ahead.


"There would be no reason for the Federal Reserve to adjust monetary policy based on this number," said Ray Worseck, chief economist at A.G. Edwards & Sons. "Overall, it's obvious the economy took a breather in the third quarter."


The inflation-sensitive bond market rallied on the news, sending the benchmark 30-year Treasury bond up about 11/32 of a point, or $3.4375 per $1,000 face value, and its yield, which moves in the opposite direction, fell to 6.66 percent from 6.68 percent Tuesday, which was its lowest level since April 4.


GDP measures the value of all goods and services produced by workers and capital within a country's borders.


Many economists say, however, that the third-quarter deceleration may prove temporary. Relatively strong levels of consumer confidence and steady income gains from an expanding job market are expected to lead to a strong holiday shopping season between Thanksgiving and Christmas.








Companies built up inventories in the third quarter, apparently in anticipation of firm future sales, while investment in machinery to expand output was also strong.


Consumer spending barely grew, by 0.4 percent, at a $5.2 billion annual rate in the third quarter after surging 3.4 percent at a $38.5 billion rate in the second quarter.