Slowing consumption and less expected restocking by businesses suggest the better-than-expected 2.8 percent annual growth rate from July through September, which the government reported Thursday, won’t last through the final months of the year.
Economists had expected a much slower growth rate over the summer, but businesses replenished inventories in the third quarter at a stronger pace than anticipated. That restocking is likely to become a weakness in the final quarter of the year as companies produce or buy less.
“Deceleration is likely,” Alan Levenson, the chief economist for investment giant T. Rowe Price, said in a note to investors.
The 2.8 percent rate, a first estimate that’s subject to revision, showed the economy clearly accelerating over the 2.5 percent rate of growth from April through June. Over the last 12 months, however, the picture is a less happy one, with the economy growing at an annual rate of 1.6 percent.
When the inventory build is subtracted, the U.S. economy grew at a 2 percent annual rate in the third quarter, down from 2.1 percent during the previous quarter. “I do think that the fourth quarter will be softer, but 2014 will be better than 2013. I think the drags are going to turn into positives in 2014,” said Gus Faucher, a senior economist with PNC Financial Services Group in Pittsburgh.
This year was the end of a payroll-tax holiday, meaning everyone took home less in the paycheck. And government spending fell sharply in the first half of the year. Those won’t be such big issues next year, and housing and international trade are continuing to heat up.
“I do expect to see significantly stronger growth in 2014 than we’re having this year,” Faucher said.
“During the third quarter, the economy grew at its fastest pace in a year, an indication that the recovery was continuing to gain traction in the months before the government shutdown,” Jason Furman, the head of the White House Council of Economic Advisers, said in a statement. “GDP growth was boosted by a positive contribution from consumer durables purchases, the continued recovery in the housing sector, and net exports.”
Furman cautioned not to expect a repeat in the final months of the year, pointing to estimates from big Wall Street research firms that project the 16-day shutdown will shave between two-tenths and six-tenths of a percentage point off the fourth-quarter growth rate.
There were both bright spots and signs of trouble in the third-quarter numbers.
Exports grew at an annualized rate of 4.5 percent, outpacing imports, which grew by 1.9 percent. That meant trade moving through the nation’s seaports and across the land borders was both picking up and favoring U.S. products.
And after three years of declines, spending by state and local governments rose for the second quarter in a row, the first back-to-back quarterly gains since 2009.
But growth in disposable household income slowed to just 2.5 percent from July through September, and real personal consumption spending increased by 1.4 percent, down from 1.8 percent in the second quarter. Consumption drives about two-thirds of U.S. economic activity, so any slowdown there could be a sign of trouble.