U.S. economic growth slowed in 3rd quarter

Economists took heart that consumers and businesses — outside of the residential sector— spent solidly — which helped to cushion some of the fallout from the housing slump.

The economy’s softness in the third quarter stemmed in large part from the cool down in the once-hot housing market.

Spending on home building dropped at a rate of 17.4 percent in the third quarter. That was the biggest drop since the first quarter of 1991 when such spending was sliced at a 21.7 percent pace.

Weak inventory building by businesses and the bloated trade deficit also played roles in weighing down economic activity in the third quarter.

Even with the feeble third-quarter showing, analysts didn’t believe the economy was in danger of sliding into recession.

An inflation gauge tied to the GDP report showed that core prices — excluding food and energy — advanced at a rate of 2.3 percent in the third quarter, which was down from 2.7 percent in the second quarter.

Over the last 12 months, however, this inflation measure rose by 2.4 percent, the largest annual increase since 1995.

Energy prices, which had surged in the summer, have since calmed down.

Gas prices are now hovering around $2.23 a gallon nationwide, compared with more than $3 a gallon in early summer. Oil prices are now just over $61 a barrel, down from $77.03, a record high close in mid-July.

That is supposed to help ease inflation and lead to better economic activity.

Lower energy prices leave people and companies with more money to spend on other things. If they spend and invest, that adds to economic growth. Many economists believe the economy will do better in the current October-to-December quarter, perhaps clocking in close to 3 percent.

The Federal Reserve held interest rates steady on Wednesday for the third meeting in a row. The Fed had hoisted rates 17 times since June 2004 to fend off inflation. The Fed’s goal is to slow the economy sufficiently to thwart inflation but not so much that it tips into recession.

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