A slumping housing sector helped slow US economic growth in the third quarter to its weakest pace in more than three years, the Commerce Department said today.
Gross domestic product, which measures total economic activity within US borders, expanded at a 1.6% annual rate during the third quarter, down from 2.6% in the second quarter for the slowest advance since 1.2% in the first quarter of 2003.
Third-quarter GDP growth was well below Wall Street analysts' forecasts for a 2.2% rate of growth and reflected a range of influences that combined to slow the economy.
Most striking was a 17.4% annual rate of contraction in spending on new housing - the biggest decline in 15 and a half years since a 21.7% drop in the first quarter of 1991.
In addition, business spending on inventories increased only at a $50.7 billion rate, slowing from $53.7 billion in the second quarter, and the volume of imported goods accelerated sharply to a 7.8% annual rate of increase in the third quarter, more than three times the second quarter's 1.4% increase.
The drag on growth from a rapidly softening housing sector was expected, since other reports have shown prices are weakening for both new and existing homes and builders are offering incentives to try to reduce their inventories of unsold homes.
By contrast, the GDP report showed that business investment remained healthy and consumers picked up their spending pace, giving credence to forecasts that the economy retains enough vigour to keep growing at least at a moderate rate.
Non-residential investment, which serves as a proxy for business spending, rose at an 8.6% annual rate in the third quarter, close to double the second quarter's 4.4%. Consumer spending, which accounts for roughly two-thirds of national economic activity, increased at a 3.1% rate, up from 2.6% in the second quarter.
The news was mixed on prices. A gauge favoured by the Federal Reserve - personal spending excluding food and energy - increased at a 2.3% rate during the third quarter, slower than the 2.7% posted during the second quarter.
But so-called core prices, measured on a year-over-year basis, were up 2.4% in the third quarter, which department officials said was the strongest rate since 1995.
The Fed highlighted its continuing concern over potential inflation pressures when it announced on Wednesday that it was keeping interest rates steady for now, but it remained watchful about price rises.
