Economic growth in the US suddenly slowed down in the year’s third quarter.
According to the Department of Commerce, the GDP (Gross Domestic Product) grew at an annual rate of 1.5% between the months of July and September, down from 3.9% in the second quarter.
This was somewhat due to companies running down stockpiles of products in their warehouses. The Federal Reserve kept rates unchanged on Wednesday, stating that the economy was expanding at a “moderate” rate.
Truthfully, it is a sharp slowdown when compared with the previous three months. However, the biggest cause for it was companies using up stocks – satisfying demand by selling product already in their warehouse.
That process has a limit. They will, sooner or later, feel they have sold enough and might want to begin replenishing those stocks.
Consumer spending remained quite sturdy. It also slowed down, but not by much. In the three-month period it grew by 0.8%, or 3.2% per annum.
So far this year, low oil prices have hit US energy firms. On the other hand, those same lower fuel prices have meant good news for consumer spending, which accounts for over two-thirds of US economic activity.
In the third quarter, consumer spending grew at 3.2%, down from 3.6% in the second quarter, but still a good reading.
According to analysts, the running down of warehouse stock in the third quarter was probably going to be a temporary effect, and growth is expected to speed up once again in the fourth quarter.
There has been an intense debate for several months concerning when the US central bank will increase interest rates, and now the priority is on its last meeting of the year in December.
In past statements, the Fed has stated that it expects to raise rates in 2015 and that inflation, labour market participation and the global economy would be the major factors in its decision.
The Fed said, in its most recent statement on Wednesday, that the committee will assess both realized and expected progress toward its goals of 2% inflation and maximum employment, in deducing whether or not it will be appropriate to increase the target range in its next meeting.
But the Fed dropped comments, which had been used in the prior month’s statement, that the US could be affected by weaknesses in the global economy. This was seen by financial markets as a sign that the Fed would more than likely increase rates in December.