The US economy chilled down in the third quarter as companies held off on production to avoid an excess buildup in inventories, specifically of products for foreign markets.
Gross domestic product increased by a 1.5% annual pace from July through September, according to the government on Thursday. The US had grown at a pace of 3.9% rate in the second quarter.
The slowdown was caused mostly from the largest drops in inventories in three years. Companies also reduced spending on oil platforms and commercial buildings.
However, even as businesses showed more restraint, consumers proceeded to spend at a steady rate, which implies that they are not worried. Consumer spending is the most significant basis of US economic growth, which has increased at a 3.2% annual pace followed by an even larger gain in the second quarter.
More confident since the recession in 2009, consumers have spent profoundly on vehicles. These products jumped up 6.7% in the third quarter.
The cause of the increase in spending is higher inflation-adjusted incomes, an excess of cheap gas. Millions of Americans have also found employment over the past few years, allowing them to spend more.
Economists anticipate consumer spending will display another positive gain in the last three months of 2015, possibly pushing GDP back towards the 2.5% range or higher.
Still, the third-quarter results almost promises the US won’t break 3% annual growth in 2015 for the 10th straight year. The year 2005 was the last time the economy expanded that quickly.
US energy companies also reduced spending on rigs, heavy machinery and other expensive equipment after the drop in oil prices.
Businesses reduced production to avoid risk of inventory excess. The value of inventories increased $56.8 billion from July to September after $100 billion-plus increases in the prior two quarters that marked the highest back-to-back gains ever.
The effects of the strong dollar DXY, -0.27% were also apparent by a small increase in US exports, up only 1.9% in the third quarter. Imports rose a little slower at 1.8%.
Businesses didn’t stoop down completely, however. Investment in equipment increased a decent 5.3% and construction companies advanced investment in new homes by 6.1%.
There is no evidence that companies are worried and looking to layoff workers. A government report issued Thursday displays the layoff rates in the US to be at the lowest level in decades.
As anticipated, inflationary pressures in the US economy were subdued due to a drop in oil prices at the end of the summer. Prices measured by the PCE index increased at a 1.2% rate, down from 2.2% in the second quarter.
The Federal Reserve expects inflation to move back towards the 2% range, which probably won’t occur until 2016. Low inflation has prevented the central bank from increasing benchmark short-term interest rate.