NEW YORK—The U.S. economy grew at a slower pace than originally forecast, according to the U.S. Department of Commerce, because of slower inventory growth from businesses.
The Commerce Dept. revised down GDP growth from the July to Sept. quarter to 2 percentage points annualized, which is down from the 2.5 percent originally estimated.
The revision is mainly due to smaller inventories at businesses, which could mean a ramp-up in spending in the fourth quarter amid stronger consumer demand. But in the same report, the Commerce Dept. said that inflation-adjusted-after-tax incomes dropped by the quickest rate in two years, as the high unemployment rate and slower income growth hit home for many consumers. After-tax corporate income, however, rose 3 percent.
Despite the depressed income, most economists are still predicting a 3 percent growth in GDP for the fourth quarter, mainly based on encouraging October retail sales reports recently released as well as high factory output.
However, any gains should be fleeting unless there is a stable job market and higher pay raises. In October, the economy added 80,000 more jobs.
The U.S. government typically makes a few revisions to quarterly GDP estimates as data and information becomes more complete.
Economic Future Cloudy
The nation’s economic outlook took a hit this week after a special congressional deficit committee failed to reach a compromise after intense negotiations, according to statements by the committee’s leaders.
Members “ … did not succeed because we could not bridge the gap between two dramatically competing visions of the role government should play in a free society …,” wrote Rep. Jeb Hensarling (R-Texas) in an op-ed in the Wall Street Journal. The committee was set up in the summer and was tasked to cut more than $1.2 trillion from the federal budget over the next 10 years.
By most accounts, the more intense debates focused on Bush-era tax cuts, with Democrats seeking to raise taxes on those making above a certain salary threshold, while the Republicans looked to extend all tax cuts. But with the failure of the committee, any budget cut agreement would have to come after the 2012 election.
The failure of the committee now triggers a previously agreed $1.2 trillion in automatic spending cuts, although they could still be amended.
On Tuesday, credit rating firm Standard & Poor’s reaffirmed its AA+ rating on U.S. credit, while Moody’s Investors Service reaffirmed its AAA rating.
