The upward revisions also extended to exports and suggested some
underlying strength in the economy, even though growth in the
quarter was largely driven by a buildup in inventories.
The report was supportive of the Federal Reserve's decision this
week to reduce by $10 billion from January the $85 billion it is
pumping into the economy each month through bond purchases.
"The underlying momentum in economic activity shifted up a gear in
the third quarter," said Millan Mulraine, deputy chief U.S.
economist at TD Securities in New York. "The strength in domestic
consumption and investment activity points to a more constructive
narrative on growth than previously thought."
Gross domestic product grew at a 4.1 percent annual rate instead of
the 3.6 percent pace reported earlier this month, the Commerce
Department said in its third estimate.
That was the quickest pace since the fourth quarter of 2011 and an
acceleration from the April-June quarter's 2.5 percent.
Third-quarter growth was first estimated at a 2.8 percent rate.
Stocks on Wall Street rose on the data, putting the Standard &
Poor's 500 index <.SPX> on pace for its biggest weekly gain in five
months. The dollar briefly hit a five-year high against the yen, but
later gave up gains. U.S. Treasury debt prices were up.
The data added to other reports such as employment and industrial
production that have suggested the economy is on a firmer footing
and better able to withstand an anticipated slowdown in stock
building this quarter.
DOMESTIC DEMAND RAISED
Consumer spending, which accounts for more than two-thirds of U.S.
economic activity, was raised 0.6 percentage point to a 2.0 percent
rate. The revisions reflected higher spending on both goods and
services than previously estimated.
There was stronger spending on health care and recreation. That
lifted spending on services to a 0.7 percent rate, instead of the
flat reading that was reported early this month. Spending on goods
was bumped up by four tenths of a percentage point.
"The consumer is back in the game," said Chris Rupkey chief
financial economist at Bank of Tokyo-Mitsubishi UFJ in New York.
"They are taking care of themselves, spending more on healthcare,
spending more on recreation, and driving around more, buying more
gasoline,"
Consumer spending grew at a 1.8 percent rate in the second quarter.
Despite the pick-up in consumer spending, inflation remained
contained. An inflation gauge in the government's GDP report rose at
a 1.9 percent rate, instead of the 2.0 percent rate reported early
this month.
A core measure that strips out food and energy costs was also
revised down to a 1.4 percent rate from a 1.5 percent rate.
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There were upward revisions to business spending, which was raised
1.3 percentage points to a 4.8 percent rate. That reflected stronger
growth in intellectual property products such as software, research
and development, and entertainment.
The fairly upbeat consumer and business spending outcomes left
domestic demand rising at a 2.3 percent rate, instead of the 1.8
percent pace reported earlier this month. That was the fastest pace
since the first quarter of last year.
Export growth was also raised up by two tenths of a percentage point
to a 3.9 percent pace.
Spending on residential construction was lowered by 2.7 percentage
points to a 10.3 percent rate in the third quarter.
A large build-up of stocks still accounted for much of the increase
in GDP growth in the July-September quarter.
That has left economists anticipating a slowdown in the pace of
inventory accumulation, which would hurt fourth-quarter growth,
already expected to take a hit from a 16-day government shutdown in
October.
Businesses accumulated $115.7 billion worth of inventories in the
third quarter. So far there is little sign that businesses are
pulling back, with stocks at retailers, auto dealerships and
wholesalers increasing solidly in October.
Some economists say the inventory drag on GDP could be delayed until
the first quarter of 2014, while others believe the third-quarter
stock pile-up was probably planned.
"The sharp run-up in production in recent months suggests that the
pullback from inventories may be smaller than we had first assumed,
but it still is likely to dampen growth," said Peter D'Antonio, an
economist at Citigroup in New York.
An inventory drag in the first three months of 2014 is likely to be
offset by some loosening of fiscal policy.
(Reporting by Lucia Mutikani; additional
reporting by Richard Leong in New York; editing by Andrea Ricci)
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