GDP growth slower in 3Q
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November 29, 2000: 12:10 p.m. ET
Revised 2.4% figure lower than first reported but tops forecasts
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NEW YORK (CNNfn) - The U.S. economy grew at the slowest pace in four years in the third quarter, the government said Wednesday, scaling back its initial reading of a month ago. The report was the latest sign that the Federal Reserve's interest rate increases are slowing growth in the world's largest economy.
The Commerce Department said gross domestic product, the country's total output of goods and services, grew at an annual rate of 2.4 percent in the quarter, down from the 2.7 percent rate estimated a month ago. Analysts were looking for a revised reading of 2.2 percent, according to Briefing.com.
The economy has slowed sharply from the second quarter's 5.6 percent rate of growth. The department attributed the decline to downturns in investment and in federal government spending as well as less inventory building by businesses.
Economists said the Fed is basically getting what it wanted after it raised rates six times since mid-1999 and that the central bank may officially shift its position away from raising rates again.
The right medicine from the Fed?
"The Fed should be very comfortable with this. They likely will shift the bias in their upcoming meeting to neutral," Carol Stone, deputy chief economist with Nomura Securities International, told Reuters Wednesday.
Oscar Gonzalez, an economist with John Hancock Financial Services, said: "Continuation of a slowing trend is likely, and it could put the Fed in a pretty tight spot, because it could leave it wanting to possibly reverse its recent policies and start easing rates."
Investors mostly liked what they saw and sent the Dow Jones industrial average up about 105 points, or 1 percent, to 10,613 at mid-session. The Nasdaq composite was little changed.
Spending on computers and software was lower than previously calculated. Also, businesses added to inventories at a slower $73.5 billion-a-year rate instead of the $79.9 billion pace of the third quarter, further shaving from the rate of GDP advance.
Personal spending by consumers grew 4.5 percent in the quarter, up from a 3.1 percent increase in the second quarter, the department said. Imports rose 17.4 percent, a bit slower than in the second quarter, while exports rose 15.4 percent, up from the previous quarter.
In what could be a worrisome sign for the stock market, American corporations' profits rose just 0.6 percent in the third quarter, the weakest performance in nearly two years.
But the slower economic growth also helped curb inflation: an inflation gauge tied to the GDP showed prices rising at an annual rate of 1.9 percent in the third quarter, the best showing this year.
Some analysts said that despite the slowdown, the economy remains in good shape.
"The economy is still incredibly strong. I mean remember we're at 3.9 percent unemployment rate, anyone that wants to work is out there working," Tim Rogers, chief economist with Briefing.com told CNNfn's Before Hours. "We are seeing some downtrends, dot.coms are taking it on the chops, but I don't think there's any real risk of a recession here."
-- from staff and wire reports
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Commerce Department
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