U.S. Big Economy Machine Slows
A wider trade imbalance and smaller inventory stockpiles led to a downward revision for third-quarter U.S. growth, the slowest pace for the expansion in four years, government figures showed Wednesday.
Third-quarter gross domestic product - the output of goods and services produced by labor and property - increased at an annual rate of 2.4 percent, the Commerce Department said. The government had first reported a 2.7 percent rate of growth in the July-to-September period.
This pace is the slowest since the economy expanded by just 2 percent in the third quarter of 1996.
Economists surveyed by CBS.MarketWatch.com expected both an increase in imports and a slowdown in inventory investment to impact this report, the broadest measure of the economy's performance. In fact, the survey pegged the revision exactly where the government figures came in, 2.4 percent. There was less private investment in equipment and software than first tabulated in the period.
GDP has come off its fourth-quarter 1999 peak of 8.3 percent, although showed a spurt again in the second quarter of 2000 when the economy grew by 5.6 percent.
Some financial experts did entertain the idea that revised growth could have been slower, even below 2 percent in the third quarter.
"We're in a transition to slower growth," said Diane Swonk, chief economist at Bank One prior to the data release. "This is not a hard landing."
She, and other economists, suggested that the relative strength of consumer demand and the eventual need to build inventories back up could lead to at least a modest rebound in growth in the fourth quarter.
That said, Federal Reserve policymakers meeting on Dec. 19 have to weigh continued signs of economic moderation against the possibility of a demand resurgence as they decide whether or not to shift their so-called policy bias to "neutral."
Economists are divided on whether or not the central bank can yet abandon its view that inflation remains the economy's largest risk. Most analysts, however, said an interest-rate cut is in the cards for sometime in the next year. Personal consumption expenditures were unrevised at a 4.5-percent increase. The PCE, which accounts for two-thirds of the overall GDP number, rose 3.1 percent in the second quarter and a 16-year-high 7.6 percent in the first quarter.
The price index for gross domestic purchases increased 2.3 percent in the third quarter, a downward revision of 0.1 percent. This index rose 2.1 percent in the second three months of the year. Excluding the volatile food and energy components, prices were up 1.8 percent, compared to an increase of 1.7 percent in the second quarter.
The personal consumption expenditures price index, a favorite price gauge of Fed Chairman Alan Greenspan, rose 2.1 percent in the third quarter, the same as a quarter earlier.
The government also reported that corporate profits after taxes rose just 0.6 percent in the third quarter, the smalest since profits registered a negative 1.6 percent in the final period of 1998.
By Rachel Koning
©2000 MarketWatch.com, L.L.C