Economic Growth Slightly Faster Than First Thought

Tuesday, 23 Nov 2010 08:40 AM

 

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The U.S. economy grew faster than previously estimated in the third quarter, government data showed on Tuesday, but still not enough to address stubbornly high unemployment.

Gross domestic product growth was revised up to an annualized rate of 2.5 percent from 2.0 percent as exports, and consumer and government spending were stronger than initially thought, the Commerce Department said in its second estimate.

Economists had expected GDP growth, which measures total goods and services output within U.S. borders, to be revised up to a 2.4 percent pace. The economy expanded at a 1.7 percent rate in the second quarter.

There are signs activity picked up mildly as the fourth quarter started, but growth will likely remain below the 3.5 percent rate that economists say is needed to reduce a 9.6 percent unemployment rate.

Concerns about the slow growth pace spurred the Federal Reserve early this month to ease monetary policy further through controversial purchases of $600 billion worth of government bonds to drive ultra low interest rates even lower.

The U.S. central bank is expected to cut growth forecasts for this year through 2012 when it releases minutes of the Nov. 2-3 meeting later on Tuesday.

The government revised third-quarter growth to reflect sturdy consumer, government and business spending. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, grew at a 2.8 percent rate in the July-September period instead of 2.6 percent.

It was still the fastest pace since the fourth quarter of 2006 and was an acceleration from the second quarter's 2.2 percent pace. Government spending increased at a 4.0 percent rate rather than 3.4 percent, due to an upward revision in state and local expenditures.

Business investment was a touch higher than initially estimated, lifted by much stronger spending on equipment and software, though structures were weak. Business spending increased at a 10.3 percent rate instead of 9.7 percent.

That was still a step down from the second quarter's brisk 17.2 percent rate. Spending on software and equipment grew at a 16.8 percent rate instead of 12.0 percent.

The contribution from business inventories was surprisingly smaller than initially estimated, the report showed. Business inventories increased $111.5 billion, instead of $115.5 billion in last month's estimate, adding 1.30 percentage points to third-quarter GDP.

Excluding inventories, the economy expanded at a 1.2 percent pace rather than 0.6 percent.

Revisions to third-quarter GDP growth also reflected import growth that was not as big as initially thought, while exports were a bit stronger.

That created a trade deficit that sliced off 1.76 percentage points from GDP growth instead of 2.01 percentage points.

Investment in home building was a drag on growth, contracting at a 27.5 percent rate, a touch less than the 29.1 percent decline reported last month.

The GDP report also showed after tax corporate profits rose 1.0 percent in the third quarter after growing 3.9 percent in the April-June period. The increase in third-quarter profits was below economists' expectations for 3.6 percent.

The report also showed no inflation pressures in the economy. The Fed's preferred inflation measure, the personal consumption expenditures price index, excluding food and energy, rose at an unrevised annual rate of 0.8 percent.

That was the smallest increase since the fourth quarter of 2008 and the second-lowest reading since the fourth quarter of 1962.

© 2014 Thomson/Reuters. All rights reserved.

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