Third-Quarter GDP Revised Lower, but It Could Have Been Worse

Despite being at a four-year low, economists predicted a much larger downward revision to the indicator.
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The government revised lower its estimate of how quickly the economy grew during the third quarter, but not by as much as economists expected it to.

Still, the estimated growth rate of

gross domestic product during the third quarter, 2.4%, is the slowest since the third quarter of 1996. Economists polled by

Reuters

had forecast a revision to 2.2%, on average. The

Commerce Department's

initial estimate of third-quarter GDP growth, on Oct. 27, was 2.7%.

The downward revision was due in large part to a slowdown in the pace at which businesses accumulated inventories, and to a wider trade deficit. Business spending on equipment and software also slowed.

The other components of the economy were either little changed or stronger than they appeared in the first-pass estimate.

The growth rate of consumer spending, which is the largest component of GDP, was unchanged at 4.5%, contributing 3.02 percentage points to the overall growth rate.

But inventory-accumulation by businesses, which contributed 0.83 percentage points to the Oct. 27 estimate of how fast the economy grew, subtracted 0.18 percentage points from today's estimate. Businesses accumulated inventories at a $73.5 billion rate, the government said, down from an initial estimate of $79.9 billion. The downward revision subtracts from GDP rather than adds to it because the new estimate is lower than the second-quarter inventory-accumulation rate of $78.6 billion.

The trade deficit subtracts 0.79 percentage points from the newest estimate of third-quarter growth. In the initial estimate, it subtracted 0.25 percentage points. The larger the trade deficit, the more it subtracts from GDP. The annualized third-quarter trade deficit was $425 billion, up from an initial estimate of $410.8 billion.

Business spending on equipment and software, for its part, grew at a 5.7% rate during the third quarter, down from an initial estimate of 8.5%. As a result it contributed 0.59 percentage points to the growth rate, down from 0.87.

Helping offset those three components, business spending on factories and other structures grew more quickly than initially estimated, and government spending slowed less than originally thought.

The Commerce Department will release a final estimate of the third-quarter GDP growth rate on Dec. 21.