The economy slowed in the third quarter, but not to the same degree previously believed. Today’s report from the Commerce Department indicated that the economy grew by 2.1% during the quarter ended September 30, a moderate increase over the prior estimate of 1.5%.
Despite a bit of a bumpy ride through the first three quarters of the year, the economy continues to grow in line with a moderate 2.0 – 2.5% trend that has largely defined the past several years. Given the sharp slowdown in China and other emerging market economies and slower global growth this year, the U.S. economy appears to be performing comparatively well.
The report reaffirmed that consumers continued to spend at a solid pace, although the 3.0% advance reflected a modest downward revision. Nonetheless, it’s indicative of a generally upbeat consumer environment, fueled by resurgent job market conditions and elevated confidence.
The most notable adjustment in the report was an increase in business inventories, which were trimmed less during the quarter than previously believed. That reduction still shaved 0.6% off top-line growth, but the drawdown was less than half of the previously reported drag of over 1.4%. That was good news for top-line growth in Q3, but may temper expectations a bit for the closing months of 2015.
Although the report confirmed that the economy softened in the third quarter, the news remains largely positive. Job creation had lagged in August and September, but rebounded sharply in October. Retail sales have been soft, but consumer confidence remains relatively upbeat and overall consumer spending has been solid. With the jobless rate now down to 5.0%, there are some indications that wage gains may be gathering some steam, which should boost the collective consumer mood heading into the important holiday shopping season. Gas prices have also dropped precipitously in recent weeks, providing a little extra cushion in household budgets for discretionary spending at just the right time.