Consumer, business spending a GDP silver lining

WASHINGTON — The U.S. economy pulled back in the third quarter as companies cleared out inventory. Beneath the surface, though, the government’s tally of gross domestic product showed buoyant consumer and business spending.

GDP, the sum of all goods and services produced in the country, rose at a 1.5 percent annualized rate in the JulySeptember quarter after a 3.9 percent pace in the April-June quarter. Had it not been for the biggest inventory swing since 2011, the economy would have grown 3 percent.

Household purchases, buoyed by gains in jobs and incomes, probably will remain a mainstay of the economy even as weaker sales to foreign customers hold back exports and manufacturing. The quick rebalancing of stockpiles, which brings them more in line with demand heading into the holiday season, indicates that factory production is soon likely to stabilize, eliminating a source of weakness.

“The headline is not indicative of how solidly the U.S. is growing,” said Gennadiy Goldberg, a U.S. rates strategist in New York with TD Securities. “The domestic drivers in consumption are quite strong.”

Final sales to domestic purchasers, or GDP excluding the trade and inventories categories, advanced at a 2.9 percent annualized rate after a 3.7 percent pace in the second quarter.

Scott Clemons, chief investment strategist at Brown Brothers Harriman, said, “Personal consumption is the 800pound gorilla of the economy. It’s quite good, especially given that the recovery is a bit long in the tooth.”

Indeed, the pluses and minuses buried in the details of the GDP report highlight the contradictions that economists, Federal Reserve policymakers and ordinary consumers all have to contend with after more than six years of tepid economic growth.

Some sectors, such as technology, health care and finance, are enjoying conditions that echo the booming 1990s or the housing bubble a decade ago.

The situation could not be more different in areas of the economy that depend on commodity prices, such as the oil and gas industry, which is cutting jobs amid a plunge in energy prices. Manufacturers, too, have felt headwinds as the strong dollar and weakness in China have hurt sales abroad.

Echoing this pattern, economic conditions are best on the coasts, espe- cially in the Northeast and Silicon Valley, while broad swaths of the country’s midsection struggle.

“We’ve got a lot of folks moving into the Bay Area getting jobs, and you see the growing pains that come with that, like traffic and housing affordability,” said Scott Anderson, chief economist at Bank of the West in San Francisco. “The incubator is the tech sector, but it’s broader-based than that.”

At the same time, Anderson said, “the decline in energy and commodities is having a detrimental effect on growth from Texas north to Minnesota.”

The third-quarter GDP figure was in line with the 1.6 percent median projection in a Bloomberg survey of 80 economists. The government’s estimate is the first of three for the quarter; the other releases are scheduled for November and December when more information becomes available.

A separate report from the Labor Department on Thursday showed that the number of applications for unemployment benefits was little changed last week, hovering near the lowest level in four decades. Jobless claims rose by 1,000 to 260,000 in the period that ended Saturday.

Information from The New York Times was included in this story.