Economic growth in the United States slowed down considerably in the third quarter as more businesses are dealing with an inventory glut. Despite this, domestic demand is still strong and might encourage the Federal Reserve to pull the trigger on a rate hike in December.
According to the Commerce Department. Gross domestic product was up 1.5%, lower than the previous quarter at 3.9%. Economists forecasted GDP of 1.6% in the third quarter.
Economists expect the inventory glut to be temporary and growth to pick back up in the fourth quarter.
During the Fed’s policy meeting statement on Wednesday, the central bank described the US economy as expanding at a moderate pace. A December rate hike is still on the table.
In the third quarter, businesses added $56.8 billion in inventory, the lowest level since the first quarter of 2014 and a sharp decline from the $113.5 billion figure seen in the April-June period. Declines in retail inventories, manufacturing and wholesale were seen.
Bullish consumers offset declining inventories. Consumer spending was up at a 3.2% rate, slightly below the 3.6% pace seen in the second quarter. Private domestic demand (excludes inventories, trade and government spending) climbed at a 3.2% pace.
Although domestic demand is strong, inflation retreated thanks to cheaper gas prices and a stronger dollar.