(MENAFN- Arab Times) US economic growth was far stronger than initially thought in the third quarter, pointing to strengthening fundamentals that should support the economy for the rest of the year. The Commerce Department on Tuesday raised its estimate of gross domestic product to a 3.9 percent annual pace from the 3.5 percent rate reported last month, reflecting upward revisions to business and consumer spending, as well as restocking.
Spending on residential construction also was raised, helping to offset downward revisions to export growth and government spending.
Economists had expected growth would be trimmed to a 3.3 percent pace.
"This report will go some way in providing further confirmation about the sustainability of the current economic recovery," said Millan Mulraine, deputy chief economist at TD Securities in New York.
The economy had expanded at a 4.6 percent rate in the second quarter. It has now experienced the two strongest back-to-back quarters of growth since the second half of 2003.
When measured from the income side, the economy grew at its fastest pace since the first quarter of 2012.
US stock futures edged up and the dollar rose to session highs against the euro after the data. Prices for US Treasuries erased slight gains.
The third quarter marked the fourth out of the past five quarters that the economy has expanded above a 3.5 percent pace.
Data ranging from manufacturing to employment and retail sales suggest the economy retained some of that momentum early in the fourth quarter. Growth estimates for the final three months of the year are running a bit below a 3.0 percent rate.
The United States remains a bright spot in an increasingly gloomy global economy, with Japan back in recession and growth in the euro zone and China slowing significantly.
The brisk economic growth pace also could boost expectations the Federal Reserve will start raising its short-term interest rate sometime in mid-2015. The US central bank has kept its benchmark lending rate near zero since December 2008.
Underscoring the economy's firming fundamentals, growth in domestic demand was revised up to a 3.2 percent pace in the third quarter instead of the previously reported 2.7 percent pace.
Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 2.2 percent pace instead of the previously reported 1.8 percent rate. Growth in business investment was raised to a 7.1 percent pace from a 5.5 percent rate, with a stronger pace of spending on equipment than previously thought accounting for the bulk of the revision.
Businesses accumulated $79.1 billion worth of inventories in the third quarter, rather than the previously reported $62.8 billion. Inventories, however, could weigh on growth in the final three months of the year.
Growth
Export growth was lowered to a 4.9 percent rate from the previously reported 7.8 percent rate, while imports were revised up. That left a trade deficit that contributed 0.78 percentage point to GDP growth instead of the previously reported 1.32 percentage points.
Government spending also was cut, as outlays at state and local governments were not as strong as previously reported. Inflation remained subdued. The Fed's preferred inflation measure, the personal consumption expenditures price index, rose 1.3 percent in the third quarter, an upward revision of 0.1 percentage point. Stripping out volatile food and energy prices, core PCE prices were up 1.4 percent.
The White House and economists voiced caution about the outlook despite the better GDP numbers.
"Since the financial crisis, the US economy has bounced back more strongly than most others around the world, and the recent data highlight that the United States is continuing to lead the global recovery," said Jason Furman, President Barack Obama's chief economic adviser.
"Nevertheless, there is more work to be done to boost growth in the United States and around the world," he said, calling on Congress, which will be controlled by opposition Republicans next year, to take "important steps like increased infrastructure investment."
Barclays analyst Michael Gapen said that "although the details of this report are more positive, on net, relative to the advance release, we are not inclined to extrapolate the stronger growth into future quarters."
"Without a persistent acceleration in private consumption, it is hard for overall GDP growth to accelerate."
Rob Carnell at ING Bank warned that "a lot can happen between now and the April 2015 rate hike the market is pricing in, including much weaker inflation and a possible re-run of the 2013 government shutdown, and we are taking nothing for granted."
The Commerce Department will publish its third and final estimate of third-quarter GDP growth on Dec 23.
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