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Sorry, the U.S. Growth Surge Is Just a Blip

Producing more stuff doesn’t help if you can’t sell it, and that was the problem with the U.S. economy last quarter.

The Commerce Department reported today that output rose at an annual rate of 3.6 percent, the best since the beginning of 2012, but final sales grew at an annual rate of only 1.9 percent. What happened to the rest? It piled up on shelves. Inventories grew the most since early 1998, according to Bloomberg.

The big question is what happens next. In the optimistic scenario, final sales will pick up, and those shelves will empty out. That’s what businesses that stepped up production are hoping happens. The pessimistic view is that businesses will conclude they made a mistake and cut back output. If they also cut jobs and hours, consumers will have less to spend, final sales will get even weaker, and the U.S. will be in danger of falling back into recession.

Not too many economists are making the optimistic interpretation. “Overzealous production last quarter is likely to severely contract from the current quarter’s growth,” Lindsey Piegza, chief economist at brokerage firm Sterne Agee wrote in a client note.

Barclays Research (BCS) cut its forecast for growth in the current October-December quarter by 0.2 percentage points, to 1.5 percent. Action Economics said its fourth-quarter estimate of 1.5 percent faced “downside risk” after the report. JPMorgan (JPM) also warned it might lower its fourth-quarter growth forecast. Goldman Sachs (GS) left its fourth-quarter estimate unchanged at 1.4 percent.

The Bureau of Economic Analysis is the place to go for all the gory details.

Coy is Bloomberg Businessweek's economics editor. His Twitter handle is @petercoy.

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