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 The Commerce Department on Tuesday said the nation's gross domestic
product grew at a 2.1 percent annual pace, not the 1.5 percent rate
it reported last month, as businesses reduced an inventory bloat
less aggressively than previously believed.
The pace of economic growth, which was also boosted by upward
revisions to business spending on equipment, suggests a resilience
that could help give the Federal Reserve confidence to raise
interest rates next month.
While consumer spending was revised down a bit, its pace remained
brisk, suggesting consumers were cash-flush.
"The economy continues to move along at a good clip relative to its
potential. With growth like this, the Fed has the data it needs to
light the candle finally and lift off on December 16," said Chris
Rupkey, chief financial economist at MUFG Union Bank in New York.
When measured from the income side, the economy grew at a sturdy 3.1
percent clip, the fastest in a year and an acceleration from the
second quarter's upwardly 2.2 percent pace. Wages and salaries
increased $109.3 billion, $61.6 billion more than initially
estimated.
The third-quarter's respectable expansion should set up the economy
to achieve at least 2 percent growth in the second half of the year,
around its long-run potential. In the wake of robust job growth in
October and strong domestic demand, the Fed is expected to raise
rates at its Dec. 15-16 policy meeting.
Other data on Tuesday showed consumer confidence fell further in
November, hitting a 14-month low, as sentiment towards the labor
market surprisingly soured. Economists suspected the Nov. 13 attacks
in Paris and rising tensions in the Middle East had weighed on
consumer confidence.
Despite the drop, more consumers say they plan to buy homes,
automobiles and other big-ticket items over the next six months.
"The bigger picture suggests that domestic demand is still firm,
spending plans are evolving positively and the housing market
continues to post gains," said Robert Kavcic, a senior economist at
BMO Capital Markets in Toronto.
A third report showed house prices rose solidly in August.
U.S. financial markers were little moved by the data as investors
worried about global security after Turkey shot down a Russian
warplane.
LARGE INVENTORY ACCUMULATION
In the third quarter, businesses accumulated $90.2 billion worth of
inventories, instead of the $56.8 billion reported last month. That
followed more than $100 billion worth of inventories accumulated in
each of the prior two quarters.
As a result, the change in inventories chopped off only 0.59
percentage point from third-quarter GDP growth, rather than the 1.44
percentage points the government reported in October.
That, however, suggests inventories could be a drag on
fourth-quarter growth.
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"The bigger inventory overhang helps explain why manufacturing
sentiment remains cautious early in the fourth quarter, and does
present downside risk to our 2.5 percent estimate for
current-quarter GDP growth," said Michael Feroli, an economist at
JPMorgan in New York.
Consumer spending, which accounts for more than two-thirds of U.S.
economic activity, grew at a still strong 3.0 percent rate in the
third quarter, down from the 3.2 percent rate estimated last month.
The downward revisions mostly reflected weak outlays on
communication services and utilities.
A measure of private domestic demand, which excludes trade,
inventories and government spending, was revised down to a still
sturdy 3.1 percent pace from the previously 3.2 percent rate. Though
there are signs consumer spending slowed early in the fourth
quarter, it should continue to be supported by strong income gains.
Income at the disposal of households after adjusting for inflation
rose at a robust 3.9 percent pace in the third quarter.
A trade deficit that was larger than previously estimated subtracted
0.22 percentage point from GDP growth in the third quarter. Data on
Tuesday showing a smaller goods trade deficit suggested trade would
contribute to fourth-quarter growth.
Deep spending cuts by energy firms following a collapse in oil
prices continued to weigh on growth. Spending on mining exploration,
wells and shafts tumbled at a 47.1 percent rate, rather than the
46.9 percent pace reported last month.
However, business spending on equipment was revised up to a 9.5
percent rate from a 5.3 percent pace.
The Commerce Department also reported that corporate profits after
tax fell at a 1.6 percent rate in the third quarter after rising at
a 2.6 percent pace in the second quarter. Profits, which have been
undercut by the dollar's strength and lower oil prices, were down
8.1 percent from a year ago, the biggest decline since the fourth
quarter of 2008.
(Reporting by Lucia Mutikani; Editing by Paul Simao)
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