US economy grows 2.1 percent in third quarter

Growing in line with expectations world’s largest economy expands at moderate pace in third quarter strengthening likelihood of rate hike in upcoming December meeting

Photo by: Reuters
Photo by: Reuters

The US economy grew at a healthier clip in the third quarter than initially thought, but strong inventory accumulation by businesses could temper expectations of an acceleration in growth in the final three months of the year.

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 December 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 November 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.

A third report showed house prices rose solidly in August.

Consumer spending, which accounts for more than two-thirds of US 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.