US growth slows despite rise in consumer spending

Growth in the US economy slowed sharply in the third quarter, but American consumers continued to spend at a robust pace, suggesting the expansion remains on track.

Real gross domestic product rose at a 1.5 per cent annual pace in the July-to-September period, well below the 3.9 per cent rate recorded for the second quarter but roughly in line with Wall Street estimates.

The main reason for the deceleration was a slowdown in stock accumulation by companies, which shaved a hefty 1.4 percentage points off the data.

However, the figures revealed US consumers are spending at a resilient rate, with household consumption rising 3.2 per cent in the quarter, only slightly shy of estimates and compared with a 3.6 per cent annual pace in the second quarter.

After a weather-stunted start to the year, the US has seen steady growth in 2015 even as the global economy falters. The sharp contrast between robust domestic spending and wilting demand overseas makes for a tough policymaking backdrop for the US Federal Reserve, which is trying to gauge whether it is time to raise short-term interest rates from near-zero levels.

The Fed said on Wednesday that it will consider raising rates at its next meeting in December.

“Growth over the next year should be around 2.5 per cent at an annual rate, strong enough to reduce excess capacity and allow for a further reduction in labour market slack,” said Stuart Hoffman at PNC Financial Services.