WASHINGTON (Reuters) - The United States economy grew faster than expected in the third quarter as businesses restocked shelves, but a slowdown in consumer and business spending pointed to an underlying weakness.
Gross domestic product (GDP) expanded at a 2.8 per cent annual rate, the quickest pace since the third quarter of 2012, the Commerce Department said on Thursday. It was an acceleration from a 2.5 per cent clip in the second quarter and beat economists' expectations for a 2.0 per cent rate.
Details of the first estimate of third-quarter GDP were generally weak, with inventories contributing 0.83 percentage points to GDP growth. Excluding inventories, the economy grew at a 2.0 percent rate after expanding at a 2.1 per cent pace.
Consumer and business spending growth slowed sharply, lending the report a weak tone and validating the Fed's decision to stick to its US$85 billion (S$105.5 billion) monthly bond-buying programme.
With near-term growth prospects not that bright, a reduction in the purchases, which aim to keep interest rates low, is not expected this year.
Consumer spending, which accounts for more than two-thirds of US economic activity, expanded at a 1.5 per cent rate, slowest pace since the second quarter of 2011. It grew at a 1.8 per cent rate in the April-June period.
Some of the slowdown in consumption is blamed on weak demand for utilities because of unseasonably cool weather in the summer. But households have also been wary of loosening their purse strings as the pace of job gains slowed significantly during the quarter.
A separate report from the Labour Department suggested the jobs market continued to gradually improve.
Initial claims for state unemployment benefits fell 9,000 to a seasonally adjusted 336,000 last week. Economists polled by Reuters had expected first-time applications to fall to 335,000 last week.
An uncertain economic outlook is making businesses cautious about ramping up hiring. They are also holding back on spending on capital goods.
Business investment moderated, largely due to spending on equipment, which fell for the first time since the third quarter of 2012. Spending on nonresidential structures, including mining and drilling, rose for a second-consecutive quarter.
The economy grew at a 1.8 per cent rate in the first half of 2013, held back by a tightening in fiscal policy at the start of the year. Growth had been expected to gain speed in the fourth quarter as the drag from fiscal policy lifted.
But a 16-day government shutdown in October is expected to weigh on growth over the final three months of the year.
Away from inventories, the economy got some support from a slowdown in import growth, which helped to limit the rise in the trade deficit. Trade added 0.31 percentage points to growth in the third quarter.
The decline in government spending appeared close to running its course in the third quarter, with sturdy growth in spending by state and the local authorities.
Government spending grew for the first time in a year, even though federal spending continued to decline. Economists say this fading fiscal drag would have set up the economy on a stronger growth path in the fourth quarter, were it not for the government shutdown.
The housing market appeared to weather a spike in mortgage rates, with spending on residential construction increasing strongly.
Other details of the GDP report showed some pick-up in inflation during the quarter, but not enough to alter the picture of benign price pressures.