Washington, DC, December 21, 2006--The economy grew at a 2% real seasonally adjusted annual rate in the third quarter, slightly lower than the 2.2% estimated a month ago, the Commerce Department reported.
It was the slowest growth since the fourth quarter of 2005, when hurricane damages slowed the economy to 1.8%. The economy grew at a 2.6% pace in the second quarter.
Disposable personal incomes were revised higher, while profits were slightly lower, although profits have still risen at the fastest pace in 22 years over the past year.
Core consumer prices were unrevised in the report, showing a 2.2% annualized gain, still in the Federal Reserve's discomfort zone. Overall inflation in the economy was revised slightly higher on newer data on government purchase prices.
Economists had forecast growth in the third period to remain at 2.2% in the final revision.
Looking ahead, economists are predicting 2% annualized growth both in the current quarter and in the first quarter, which begins in 10 days.
Real final sales increased 1.9% annualized compared with 2.1% in the second quarter. Final sales to domestic purchasers--in other words, domestic demand--increased at a 2% annual rate after a 1.6% gain in the second quarter.
Residential investments fell at an 18.7% annual rate, a bit worse than the 18% estimate last month and the biggest percentage drop in 15 years.
The slump in homebuilding cut 1.2 percentage points from growth, the largest drag on growth from the sector since 1981.
Consumer spending rose at a 2.8% annual rate compared with 2.9% in the earlier report and 2.6% in the second quarter. The government said spending on services increased 2.8% in the third quarter, rather than 3.1% as earlier estimated. Spending on durable goods increased 6.4%, up from 6%. The revision to consumer spending was the major factor in the overall revision to GDP.
Consumer spending contributed 2 percentage points to growth. Disposable personal incomes rose at 4.1% annual rate, up from 3.7% estimated earlier. The personal savings rate was revised a tenth higher to negative 1.2%.
Investments by businesses increased at a 10% annual rate, unrevised. Investments in equipment and software increased 7.7% while investments in structures increased 15.7%. Business investments had risen at a 4.4% pace in the second quarter. Investments contributed 1 percentage point to growth in the third quarter.
Inventories increased by $55.4 billion, $1.7 billion more than in the second quarter. Inventory building added 0.1 percentage point to growth. Net exports cut 0.2 percentage points from growth. Exports rose 6.8%, while imports increased 5.6%.
Government spending increased at a 1.7% annual rate. Federal spending rose 1.3%, with defense spending falling 1.2% and nondefense spending rising 6.5%. State and local government spending increased 1.9%. Government spending contributed 0.3 percentage points to growth.
Corporate before-tax profits increased 3.9% at a quarterly rate in the third quarter and are up 30.6% in the past year, the fastest growth in profits since 1984. Profits after taxes rose 31% in the past year.
