U.S. economic growth slowed dramatically in the third quarter, according to preliminary data released by the Commerce Department on Thursday.
The Commerce Department said real gross domestic product increased by 2.0 percent in the third quarter after jumping by 6.7 percent in the second quarter. Economists had expected the pace of GDP growth to slow to 2.7 percent.
The bigger than expected slowdown in GDP growth came as consumer spending rose by just 1.6 percent in the third quarter after spiking by 12.0 percent in the second quarter.
Spending on durable goods plummeted by 26.2 percent in the third quarter after surging by 11.6 percent in the second quarter, while growth in spending on services slowed to 7.9 percent from 11.5 percent.
“The lackluster 2% GDP advance in Q3 shows that the U.S. economy is not out of the woods yet,” said Gregory Daco, Chief U.S. Economist at Oxford Economics.
He added, “A resurgence of Covid infections cut the summer rebound in half while growing supply chain issues led to higher inflation and curbed demand.”
The report showed the annual rate of growth in core consumer prices, which exclude food and energy prices, accelerated to 3.6 percent in the third quarter from 3.4 percent in the second quarter, reaching the highest level since 1991.
Meanwhile, the Commerce Department said the third quarter GDP growth reflected increases in private inventory investment, consumer spending, state and local government spending, and non-residential fixed investment.
Decreases in residential fixed investment, federal government spending, and exports limited the upside along with an increase in imports, which are a subtraction in the calculation of GDP.
Despite the weaker GDP growth in the third quarter, Bernd Weidensteiner, Senior Economist at Commerzbank, predicted the Federal Reserve would not be dissuaded from deciding to tapering its bond purchases at its meeting next week.