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U.S. Economic Growth Slowed Considerably In 3rd Quarter

Despite slower growth, consumers like these, at a Wal-Mart in Arkansas, continued spending.

The U.S. economy grew at a considerably slower pace during the third quarter as companies cut back on the size of their inventories, the Commerce Department said.

Growth came in at an annual rate of 1.5 percent — a sharp slowdown from the 3.9 percent gain recorded in the preceding quarter. The economy has grown at about 2 percent so far this year.

"The basic story continues to be one of modest growth with very little inflation," said economist Dean Baker of the Center for Economic and Policy Research.

This was the initial report on third-quarter growth. The government always revises the number as more data come in, and the revisions often are significant.

Stuart Hoffman, chief economist at PNC Financial Services, cautioned that the slowdown in the third quarter was not as bad as it seemed: "Although the headline number of 1.5 percent growth was a bit weaker than expected, the details were quite good."

Consumer spending rose at a healthy 3.2 percent, and spending on durable goods such as cars and appliances was up by 6.5 percent. Housing was up by 6.1 percent, and government spending rose at an annual rate of 1.7 percent.

Although the stronger U.S. dollar and weaker global economy were expected to cut into exports, there's no evidence that's happened yet.

The real culprit was a reduction in inventories: Companies, anticipating weaker sales, cut back on the amount of goods they put on their shelves

"Much of the weakness stemmed from the onset of a long-awaited correction to private inventories," said IHS Chief Economist Nariman Behravesh.

Hoffman said the decline in inventories "will quickly fade, and growth should pick back up in the fourth quarter."

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