)
Household purchases and business spending on equipment slowed in the third quarter, even as a buildup in inventories unexpectedly boosted the pace of economic growth in the US.
Gross domestic product rose at a 2.8 per cent annualised rate after a 2.5 per cent gain the prior three months, a Commerce Department report showed on Thursday in Washington. The median forecast of economists surveyed by Bloomberg called for a 2 per cent advance. Consumer spending climbed at the slowest pace since 2011 and corporate investment was the weakest in a year.
The biggest gain in inventories since the beginning of 2012 risks holding back production and the economy in the current quarter, which was restrained by a 16-day partial shutdown of the federal government. Jobs data on Friday are projected to show hiring slowed in October, helping explain why Federal Reserve policy makers are pressing on with stimulus.
"You've got this big jump in inventories, and that's clearly in excess of what the flow of spending is," said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina. "If you stockpile all this inventory but your sales don't really change all that much, then what you're going to do in the next quarter is cut back your orders, cut back production."
Estimates of the 87 economists surveyed for third-quarter GDP, the value of all goods and services produced, ranged from 1.2 per cent to 3 per cent. The data, initially slated for release on October 30, were delayed by the government shutdown.
ECB rates
Stocks declined as investors weighed the GDP figures and the European Central Bank's decision to lower interest rates to fight a looming deflation risk. The Standard & Poor's 500 Index fell 0.4 per cent to 1,764.21 at 10:27 am in New York.
The GDP estimate is the first of three for the quarter, with the other releases scheduled for December when more information becomes available.
Another report showed first-time claims for jobless benefits fell by 9,000 to 336,000 last week, according to the Labor Department.
Inventories added 0.8 percentage point to third-quarter growth. Stockpiles increased at an $86 billion annualised pace after a $56.6 billion rate in the second quarter.
The trade gap and inventories are two of the most volatile components in GDP calculations. A narrowing of the trade deficit added 0.3 percentage point to GDP growth.
Household spending
The 1.5 per cent annualised gain in household consumption, which accounts for about 70 per cent of the economy, compared with a 1.6 per cent median forecast in the Bloomberg survey and followed a 1.8 per cent advance from April through June. Purchases added 1 percentage point to growth.
Final sales, which exclude inventories, increased 2 per cent in the third quarter after a 2.1 per cent gain the prior three months. Corporate spending on equipment decreased at a 3.7 per cent annualised pace, subtracting 0.2 percentage point from growth, the most in a year.
Residential construction increased at a 14.6 per cent annualised rate, adding 0.4 percentage point to growth.
Government spending rose by 0.2 per cent, reflecting a pickup in state and local outlays. Spending by federal agencies declined at a 1.7 per cent pace.
Core inflation
The report also showed price pressures remain contained. A measure of inflation, which is tied to consumer spending and strips out food and energy costs, climbed at a 1.4 per cent annualised pace.
One bright spot for the economy this year has been motor vehicle sales as Americans take advantage of cheaper borrowing costs to replace older models. Purchases averaged 15.7 million at an annual rate in the third quarter, up from 15.5 million in the prior three months, according to Ward's Automotive Group data.
Demand held up at the start of the fourth quarter for General Motors Co. and Ford Motor Co as sales rebounded in the last few weeks of October. Cars and light trucks sold at a 15.2 million annual rate last month, matching the September pace.
"What we saw early in the month was some softness, but we were very encouraged when we saw the retail demand in the industry bounce back," John Felice, Ford's vice president of US marketing, sales and service, said on a conference call.
Labour market
While Americans are benefiting from a boost to wealth from rising stock prices and home values, a pickup in the pace of spending depends on bigger gains in employment and wages.
Payroll additions have slowed, averaging 143,000 from July through September. In the first half of the year, employment gains averaged 195,000. Labor Department figures due on Friday are projected to show an increase of 120,000 for October, according to the Bloomberg survey median.
Economic growth this quarter will be less than economists projected at the start of the budget impasse that began October 1. GDP will expand at a 2 per cent annualised rate, according to the median projection in a Bloomberg survey on October 31, down from a 2.4 per cent forecast in an October 4-9 survey.
The figure will reflect in a decline in government output, estimated by the number of hours put in by federal workers, as well as cutbacks at contractors, economists said.
The effect of the budget impasse on the economy, the recent slowdown in job growth and a pause in the housing market help explain why U.S. central bankers are continuing with $85 billion in monthly asset purchases.
"The recovery in the housing sector slowed somewhat in recent months," the central bank said in the Oct. 30 release. "Fiscal policy is restraining economic growth."
