The US economy grew at an annualized rate of 1.5 per cent in the 3Q of the year, the Commerce Department said Thursday, matching the estimates of economists surveyed by The Wall Street Journal. That was off from 2Q’s torrid 3.9 per cent growth rate. Compared with the same quarter a year ago, the economy grew 2 per cent, the slowest pace of growth since 1Q 2014. The number, while not spectacular, suggests the economy continues to grow at a steady pace despite the pressures from a strong dollar and weakness abroad.
The biggest reason was a push by businesses to shrink unwanted stockpiles, which slashed 1.4 percentage points from quarterly growth but is expected to be only temporary. Encouragingly for the economy, consumer spending remained solid over the summer: It rose at a 3.2-per-cent annual rate, down only slightly from the previous quarter.
The tailwind provided to the economy from the housing sector eased somewhat in 3Q. Residential investment added just 0.2 percentage points to overall growth in the July through September period. That’s the smallest contribution from home building and improvements in a year.
For all of 2015, the US economy is expected to expand around 2.3 per cent, near last year’s modest 2.4 per cent, despite persistent economic weakness around the world.
Still, last quarter’s slump marked the latest slide for an economy that began 2015 on a rocky note as a severe winter and US West Coast port disruptions essentially stalled growth. The economy rebounded in the April-June quarter before weakening again in the summer. The report Thursday was the government’s first of three estimates of growth for 3Q.
Business investment spending grew by a modest 2.1 per cent in 3Q, just half the second-quarter rate. Investment in structures fell at a 4-per-cent rate. That decline reflected a 47-per-cent plunge in investment in a category that includes oil and gas drilling, which has suffered huge cutbacks with the drop in global energy prices.
Government spending grew at a moderate 1.7-per-cent annual rate, slower than the 2.6-per-cent pace in the second quarter. It reflected a smaller gain in state and local spending.
Economic Indicators, US
The US Federal Reserve on Wednesday described the economy as growing at a “moderate” pace and hinted at a December rate increase by making a direct reference to its next policy meeting. The U.S. central bank has kept benchmark overnight interest rates near zero since December 2008.
The economy has struggled to sustain a faster pace of growth since the end of the 2007-2009 recession, with average yearly growth failing to break above 2.5 per cent. This year, it has faced headwinds from a strong dollar and deep spending cuts by energy firms following a collapse in oil prices.
Businesses accumulated US$56.8 billion worth of inventory in 3Q, the smallest since 1Q 2014 and down sharply from US$113.5 billion in the April-June period. There were declines in manufacturing, wholesale and retail inventories.
US New Home Sales
Contracts for new home sales disappointed in September, after a strong August and a run of weak job numbers.
According to estimates from the Census Bureau, the monthly pace of new home sales declined 11.5 per cent from August, falling from a 529,000 seasonally adjusted annual rate to 468,000. The September sales rate was effectively unchanged from the rate recorded in June.
September’s sales decline appears to be due to demand-side weakness, perhaps related to recent lackluster economic activity at the start of the Fall. For example, total job creation for August and September was only 136,000 and 142,000 for each month respectively.
However, as a sign of the overall trend for the new home sales market this year, sales-to-date for September totaled 392,000 for 2015 compared to 333,000 for 2014, a 17.6 per cent improvement. Given strong levels of builder confidence, we expect future months’ data to show a return to this positive growth trend.
New home inventory rose in September, increasing 4.2 per cent to 225,000 home for sales. This marks a 5.8 months’ supply, up from 4.9 in August. Of the total inventory, only 51,000 are completed, ready-to-occupy homes.