The economy expanded at a rate of 2.8 percent during the third quarter, but the higher-than-expected growth is not as good as it seems because the improvement from the previous quarter was due to inventory building.
From the Wall Street Journal:
The stronger overall growth was a result of businesses restocking their shelves, a factor that could lead companies to produce less in the current quarter. Consumers slowed their spending in the third quarter, and companies cut their equipment purchases.
Both developments may have reflected American consumers and businesses losing confidence as mortgage rates rose and the prospect of budget battles in Washington loomed . . .
Consumer spending, which accounts for more than two-thirds of GDP, grew at a paltry 1.5%, matching the slowest pace of growth in more than 3½ years. While consumers stepped up spending on long-lasting items such as cars, they slowed spending on services.
Overall investment across the economy grew 9.5% after rising 9.2% in the second quarter, largely reflecting strength in the housing sector. However, business spending on nonresidential equipment—a key measure of companies’ willingness to invest—fell for only the second time since the recovery began more than four years ago. The 3.7% drop is a sign companies may have become skittish as political battles over the federal budget and debt ceiling loomed.
The latest data point to an economy growing at roughly the same subpar pace that has plagued the recovery, now in its fifth year. Many economists had predicted growth would accelerate in the second half of the year as the effects of tax increases and federal spending cuts eased. That now appears increasingly unlikely.
The White House today touted the growth as “solid” and set up its expected effort to blame Republicans for any slackening during the fourth quarter. From a statement by Council of Economic Advisors Chairman Jason Furman:
In the fourth quarter, GDP growth will be slowed by the government shutdown that lasted from October 1 to October 16 and the brinksmanship over the debt limit that occurred during that period.
Growth during the second quarter was 2.5 percent.