Fred Harteis News Articles - The economy grew more slowly in the third quarter than at any time since early 2003, held back by a deflating housing market.
The Commerce Department reported this morning that the nation’s gross domestic product expanded at an annual rate of just 1.6 percent from July through September. That preliminary estimate compares with a rate of 2.6 percent in the second quarter and the robust 5.6 percent pace recorded in the first. The figures are seasonally adjusted.
The slowdown in the third quarter was worse than economists were expecting. The consensus forecast compiled by Bloomberg News was for 2 percent growth.
The stock market opened lower on the news, with major indices falling by about 0.5 percent in the first minutes of trading.
A major question hanging over both the economy and the political campaign this fall has been just how severely the slump in housing would drag down growth. The Commerce Department’s report, which will be revised twice in coming months as more complete data becomes available, shows that the drag was indeed substantial.
Residential construction plunged by nearly one-fifth in the quarter, the steepest decline in 15 years. That trend alone knocked 1.1 percentage points off the overall figure for economic growth. As recently as the spring of 2005, that sector was a major motor of growth, adding more than one percentage point to the overall figure. With the economy shifting into a lower gear, analysts believe that the Federal Reserve will be unlikely to resume raising interest rates any time soon. The Fed paused in August after a two-year campaign of steady increases in its benchmark overnight lending rate, meant to combat inflation. It has kept the rate steady at 5.25 percent through three policy-setting meetings since then, even though the inflation rate has remained stubbornly high.
The majority view at the Fed is that the economy is already on a slowing trend that will bring inflation to heel, and the new report supports that view.
A closely watched measure of inflation in today’s report, the G.D.P. price index, rose at a 1.8 percent annual rate in the third quarter, seasonally adjusted, compared with 3.3 percent in each of the first and second quarters. Falling fuel prices helped bring the rate down.
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Source; NyTimes.com
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