U.S. economic growth slows sharply to 1.5% in the third quarter

The U.S. economy slowed sharply over the summer, expanding at less than half the rate of the second quarter as the pace of economic activity eased almost across the board.

Total economic output, also known as gross domestic product, increased at a 1.5% annual rate from July through September, the Commerce Department said Thursday.

The economy grew at a 3.9% annual rate from April through June.

Economists had expected growth to slow amid global economic trouble during the third quarter, but the closely watched figure — the first of three government estimates of third-quarter growth — was less than the 1.7% that analysts had forecast.

Solid consumer spending helped keep the economy from slipping further. Still, the 3.2% increase in personal consumption expenditures was down from 3.6% in the second quarter.

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Businesses cut back heavily on their inventories, which was a major drag on economic growth. Such a reduction, though, usually is followed by inventory build-up and is a reason why the economy is expected to rebound in the fourth quarter.

Aside from the inventory drop, the report showed that consumer spending and some other indicators were solid, said Ian Shepherdson, chief economist at Pantheon Macroeconomics. He forecast the economy would bounce back to about 3% growth in the final quarter of the year.

Overall private investment decreased at a 5.6% rate in the third quarter after increasing 5% the previous quarter. The decline was driven by a drop in spending on nonresidential structures, such as oil-drilling rigs.

A measure of business investment increased 2.1%, down from 4.1% in the second quarter. But spending on equipment increased by 5.3% in the third quarter, up significantly from a 0.3% gain the previous quarter.

Hurt by the strong U.S. dollar, exports grew 1.9% in the third quarter. That was down from a 5.1% increase the previous quarter.

The pace of government spending also declined, hurt by a cutback in defense expenditures. Government spending increased 1.7% in the third quarter after a 2.6% increase in the previous quarter.

Continued concern about the health of the U.S. economy led Federal Reserve policymakers on Wednesday to vote to keep their benchmark short-term interest rate near zero, though they hinted a hike could come in December.

In their policy statement, central bank officials noted job growth slowed in September. However, they said household spending and business investment were increasing at solid rates, and indicated that their worries had eased about the effects of a global slowdown on the U.S. economy.

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