Economic Growth Revised Upwards at 3.6% in Q3

The U.S. economy grew at a 3.6 percent annual rate in the third quarter, faster than first reported and its strongest performance in 18 months.

Behind the improvement: Businesses boosted inventories even more than the government had estimated last month.

The Commerce Department’s revised estimate handily beat economists’ consensus forecast of 3.1 percent, as reported by Econoday. It’s also the highest growth rate since 2012’s first quarter, when the economy expanded at an annual rate of 3.7 percent. It expanded at a 2.5 percent annual rate in the second quarter.

But last week's revision to estimates of final demand – the value of goods and services people actually use now – fell slightly, to a 1.9 percent annual rate from 2.0 percent in the first estimate. Inventory restocking added 1.68 percentage points to growth, the Commerce Department said, twice as much as first estimated.

Economists were divided in their reaction to the news. Analysts at PNC Financial and Barclays agreed that the big inventory buildup is unlikely to be repeated in the fourth quarter, resulting in lower growth. But together with higher business investment and faster hiring, others argued rising business confidence and an improving housing market augur better growth by early next year.

“While there were special factors that boosted growth, there is no getting around the fact that the economy posted a 3 percent gain in the middle two quarters of the year,” Citigroup economist Peter D’Antonio wrote. “The economy achieved that solid pace despite substantial fiscal drag (from) tax increases and the sequester. This resilience suggests that the underlying growth in the economy has deep roots.”

Other major components of gross domestic product were a mixed bag.

Consumer spending grew 1.4 percent, a little less than first estimated. Federal spending fell less than the government first reported, and private investment in equipment, software and building grew faster than its first estimate. Exports were less than first estimated, and imports were higher, reducing gross domestic product growth, the government said.

The results appear to buttress surveys and other data that show rising confidence in faster growth next year. The Business Roundtable reported that its poll of chief executive officers shows improving prospects for investment, and last week's news that investment and inventory building are rising points in that direction.

So does news from the labor market. ADP reported that private employers added 215,000 workers in November, backed up by Friday's jobs report.

Copyright © 2013 USA TODAY, Tim Mullaney