Economy appears to have slowed at year’s end.


The numbers: The U.S. economy grew at a zippy 5.2% annual pace in the third quarter — faster than previously reported — but the surprisingly strong gain appears to have been a one-off.

Gross domestic product, the official scorecard for the economy, was revised up Wednesday from an initially reported 4.9% rate of growth. It was the biggest increase in a decade, if the pandemic years of 2020 and 2021 are excluded.

The economy seemed to have cooled off in the waning months of the year, however. Businesses are hiring fewer people and consumer spending has softened, among other things.

GDP is on track to expand at a meeker 1% to 2% annual clip in the fourth quarter, the most recent forecasts show. The figures are adjusted to take inflation into account.

Key details: Households boosted spending at a 3.6% pace in the third quarter, down from an original 4%. Read the full GDP release.

Consumer spending represents about 70% of the economy. The increase in the third quarter was unusually large and cannot be sustained given the current level of growth in household incomes, economists say.

Business investment, the next biggest leg of the economy, expanded at a revised 2.4% clip, compared with 0.8% originally.

Inventories were also stronger than initially reported, and contributed 1.4 percentage points to the increase in headline GDP.

Business profits, meanwhile, increased for the second quarter in a row. They rose 3.3% to mark the largest gain in five quarters, suggesting that higher labor costs are not weighing much on earnings.

Government spending was also a strong contributor to GDP. Outlays rose at a 5.5% rate, versus 4.6% initially.

Most other figures in the report were little changed.

GDP is updated twice after the initial results are published to incorporate new information not immediately available. The second update for the third quarter is due in one month.

Big picture: Like a pig in the belly of a python, the bulge in growth in the third quarter didn’t last for long.

Higher interest rates meant to tame inflation are also slowing the economy by making it more expensive for households and businesses to spend and invest. Rates are expected to remain high through the next year and shackle the economy.

Looking ahead: “Evidence of economic strength over the summer could mislead some to assume the economy is on a strong trajectory — it is not,” said chief economist Gregory Daco of EY Parthenon.

“Nothing [in this report] was sufficient to change the economy’s overall trajectory nor the expectation that growth will slow significantly in the fourth quarter,” said chief economist Joshua Shapiro of MFR Inc.