U.S. Economy Expands at a 2.8% Rate on Inventories

Economy in U.S. Expands at a 2.8% Rate as Inventories Climb (Bloomberg)

Economy in U.S. Expands at a 2.8% Rate as Inventories Climb (Bloomberg)

According to Bloomberg, Household purchases and business spending on equipment slowed in the third quarter, even as a buildup in inventories unexpectedly boosted the pace of economic growth in the U.S.

The 2.8 percent annualized gain in gross domestic product followed a 2.5 percent increase in the prior three months, Commerce Department figures showed today in Washington. Final sales, which exclude unsold goods, rose 2 percent in the third quarter as consumer spending climbed at the slowest pace since 2011 and corporate investment fell.

The biggest gain in inventories since the beginning of 2012 risks holding back the economy this quarter as companies limit production. A 16-day partial shutdown of the federal government added to the headwinds that the Federal Reserve is trying to offset by maintaining $85 billion in monthly bond purchases intended to keep borrowing costs low.

“You’ve got this big jump in inventories, and that’s clearly in excess of what the flow of spending is,” said John Silvia, chief economist at Wells Fargo Securities LLC in Charlotte, North Carolina, who projected a 1.9 percent gain in final sales. “If you stockpile all this inventory but your sales don’t really change all that much, then what you’re going to do in the next quarter is cut back.”

Economists at Morgan Stanley, Credit Suisse, TD Securities USA LLC and HSBC Securities America were among those who said they might reduce their forecasts for GDP.

“Fourth-quarter growth appears to be on a trajectory for growth a bit below 1.5 percent at this point,” Morgan Stanley economists said in an e-mail to clients.

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