U.S. GDP Growth Slows to 1.6% in 3Q, Lowest in More Than 3 Years

U.S. real gross domestic product (GDP) growth slows to 1.6% in the third quarter, the lowest growth in more than 3 years,  according to estimates released today by the Bureau of Economic Analysis. U.S. GDP grew at 2.6% during Q2 and a robust 5.6% during Q1 of 2006. The third quarter's 1.6% growth rate was the weakest since the first quarter of 2003, when the economy grew at a 1.2% annual rate.

Prices Inflation, as measured by prices for domestic purchases, increased 2.0% in the third quarter after increasing 4.0%. The increase was the smallest since the fourth quarter of 2003. Excluding food and energy, the core prices increased 1.9%, following a 2.9% increase in Q2. Over the last 12 months, however, this inflation measure rose by 2.4%, the largest annual increase since 1995.

Real disposable personal income increased 3.7% in the third quarter, following an increase of 1.7% in the second quarter. Current-dollar personal income increased $151.5 billion (5.7%) in the third quarter, compared with an increase of $179.6 billion (6.9%) in the second. Disposable personal income increased $146.1 billion (6.3%) in the third quarter, compared with an increase of $133.6 billion (5.8%) in the second. 

In the third quarter, consumers boosted their spending at a rate of 3.1%, up from a 2.6% pace in the second quarter. Businesses also increased spending on equipment and software at a 6.4% pace in the third quarter. However the economy's weakness in the third quarter was driven mostly from the cool down in the housing market as spending on home building dropped at a rate of 17.4% in the third quarter. That was the biggest drop since the first quarter of 1991 when such spending was sliced at a 21.7% pace.

Current-dollar GDP -- the market value of the nation's output of goods and services -- increased 3.4%, or $111.0 billion, in the third quarter to a level of $13,308.3 billion. In the second quarter, current-dollar GDP increased 5.9%, or $188.9 billion.

Economists believe the economy will do better in the current 4th quarter and grew at around 3%.

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