State of the Economy 3rd Quarter 2006

Introduction

            After showing signs of markedly slower growth in the second quarter, economic activity decelerated to a much more subdued pace during the third quarter.  Real gross domestic product (GDP) increased at an annual rate of only 1.6% in the third quarter following an increase of 2.5% in the second quarter and 5.6% during the first quarter of 2006.  The third quarter figure is lower than the paltry increase of 1.8% in the fourth quarter of 2005.  Real GDP increased at an annual rate of 3.2% for the full year 2005 on a revised basis.  The deceleration in real GDP continued in the third quarter despite a pause in rate tightening by the Federal Reserve’s Federal Open Market Committee (FOMC) and noticeable weakness in energy prices that had been at elevated levels for over a year.  Economic activity was restrained partly due to a decreased level of private inventory investment, perhaps as businesses sought a draw down in inventory levels that may have accumulated during the first half of the year, and increased import activity.

State of the Economy 3rd Quarter 2006 HG

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