The US economy grew more slowly than previously estimated in the third quarter, but weak inventory accumulation amid sturdy consumer spending supported views that output would pick up in the current quarter.
GDP grew at a 2 percent annual rate in the July-to-September quarter, the US Department of Commerce said in its second estimate on Tuesday, down from the previously reported 2.5 percent.
While the revision was below economists’ expectations for a 2.5 percent growth pace, the composition of the GDP report, especially still-firm consumer spending and the first drop in businesses inventories since the fourth quarter of 2009, set the platform for a stronger economic performance this quarter.
“The mix or composition of growth improved. Inventory investment was lower so firms are more likely to produce more goods going forward, and exports rose,” said Cary Leahey, a senior economist at Decision Economics in New York.
“So while you lost a half percentage point in the revision to third-quarter growth, you might easily get it back in the fourth quarter of this year or the first quarter of next,” she said.
Data so far suggest the fourth-quarter growth pace could exceed 3 percent, which would be the fastest in 18 months.
However, the outlook for next year has been clouded somewhat by the so-called super committee’s failure to agree on a package of at least US$1.2 trillion in deficit reduction over 10 years.
Monday’s congressional failure has raised the risk of a payroll tax holiday and emergency unemployment benefits will not be extended when they expire next month. That fiscal drag, together with the festering European debt crisis, could undermine consumer spending early next year.
Long-dated US Treasuries weakened slightly after the GDP report, while stock index futures extended losses. The US dollar was little changed, hovering near a six-week high against a basket of currencies.
Despite the downward revision, last quarter’s growth is still a step up from the April-to-June period’s 1.3 percent pace. Part of the pick-up in output during the last quarter reflects a reversal of factors that held back growth earlier in the year.
The government revised third-quarter output to account for an US$8.5 billion drop in business inventories, which lopped off 1.55 percentage points from GDP growth. Inventories had previously been estimated to have increased by US$5.4 billion.
Consumer spending was revised slightly down to a 2.3 percent growth pace from 2.4 percent, because of adjustments to motor vehicle fuels and lubricants. It was still the quickest pace since the fourth quarter of last year.
However, weak income growth could crimp spending. The report showed real disposable income fell 2.1 percent in the third quarter after declining 0.5 percent in the prior three months.
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