The U.S. economy expanded at the fastest rate in a year and a half in the third quarter propelled by the largest increase in business inventories in 15 years. Consumer spending, on the other hand, saw the smallest quarterly rise since the fourth quarter of 2009.
American GDP grew at a 3.6 percent annualized pace, considerably stronger than the 2.8 percent initial estimate from the Commerce Department. That was the best three month rate since the first quarter of last year. Economists in the Bloomberg poll had forecast a revision to 3.1 percent.
Personal consumption slipped to 1.4 percent at an annual rate from 1.5 percent in the previous quarter. It was the second weakest rise in quarterly consumption since the end of the recession in June 2009; only the flat result in the last three months of that year was lower. Economists had forecast 1.5 percent.
Businesses augment inventories in anticipation of future sales, in this case, merchandising during the holiday season. If the goods stockpiled do not sell, businesses will not resume ordering until their backlog of unsold items is eliminated. That could put a drag on GDP in the next two quarters until warehouses are cleared of inventory.
Final sales, which is GDP excluding inventories, or the actual amount of purchasing in the economy, rose 1.9 percent in the third quarter, down from 2.1 percent in the second. In the first nine months of the year final sales have averaged just 1.4 percent each quarter, the poorest performance since 2009, when the first half of the year was in recession. The 30 year average is 2.8 percent.
Business sentiment in the second half of the year, headed into the holiday season had improved dramatically. In the first six month of the year the ISM manufacturing index averaged 51.5. The index average jumped to 56.2 in the five months to November.
That rise in sentiment anticipating better sales is reflected in the stronger third quarter GDP as businesses placed orders that went into inventory.
If the hoped for holiday sales do not materialize, what the third quarter gave to GDP, the fourth may well take away.
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