FED SCRATCHES HEAD
The GDP data is one of the final gauges of economic performance that FOMC members will weigh before announcing later Wednesday whether they will reduce interest rates. The Fed is expected to trim its key federal funds rate a quarter percentage point but rate futures markets scaled back the odds on the reduction after the GDP and other data was published.
Prices rose more rapidly in the third quarter, with the so-called core index of personal consumption expenditures, which excludes food and energy items, climbing at a 1.8 percent rate. That compared with 1.4 percent in the second quarter and begins to push the boundary of the 1-to-2-percent rate for core price rises that is widely considered to be acceptable to Fed policy-makers.
While consumers spent relatively freely in the third quarter, businesses became more cautious. Business investment increased at a 7.9 percent annual rate, down from 11 percent in the second quarter.
The deterioration in housing gathered steam. Spending on residential construction plummeted at a 20.1 percent rate in the third quarter, far ahead of the 11.8 percent rate of decline in the second quarter and a seventh straight quarter in which residential spending has fallen.
A weakening U.S. dollar has made American-made products cheaper for foreigners to buy and appears to be benefiting exporters. Imports also rose in the third quarter, up 5.2 percent after contracting 2.7 percent in the second quarter.
Inventories of unsold goods also accelerated in the third quarter, to an annual rate of $15.7 billion compared with $5.8 billion in the second quarter.
Some of the build-up may represent stocking-up for the coming holiday season between Thanksgiving and Christmas although inventories may also accumulate if sales of some goods begin to lag. In either case, however, rising inventories add to growth in the period in which they occur.
(Additional reporting by Alister Bull in Washington and Steven C. Johnson, John Parry and Ellen Freilich in New York)