GDP grows 2.7%, beats estimates
The economy grew at a 2.7 percent annual rate from July through September, much faster than first thought. The strength is expected to fade in the final months of the year because of the effects of Superstorm Sandy and uncertainty about possible tax increases and government spending cuts.
The Commerce Department said on Thursday that growth in the third quarter was significantly better than the 2 percent rate estimated a month ago. And it was more than twice the 1.3 percent rate reported for the April-June quarter.
The main reason for the upward revision to the gross domestic product was that businesses restocked at a faster pace than estimated. That offset weaker consumer spending growth.
GDP measures the nation's total output of goods and services — from restaurant meals and haircuts to airplanes, appliances and highways.
Most economists said economic growth is slowing to below 2 percent in the October-December quarter. That's considered too weak to rapidly lower the unemployment rate.
Paul Ashworth, chief U.S. economist at Capital Economics, said companies are probably restocking more slowly. Businesses typically cut back when they think consumers will spend less. Consumer spending drives roughly 70 percent of economic activity.
Consumer spending grew at a weaker 1.4 percent rate in the third quarter, down from the 2 percent rate estimated a month ago and nearly in line with the 1.5 percent rate in the second quarter.
Economists cite two reasons for the anticipated weakness in consumer and business spending.
Sandy halted business activity along the East Coast in late October and November. And spending may weaken in the final weeks of the year, if lawmakers and Obama fail to reach a “fiscal cliff” deal.
Companies are “likely thinning inventories just in case Congress fails to do its job, which is always a possibility,” said Joel Naroff, chief economist at Naroff Economic Advisors.
A separate report on Thursday showed the negative impact of the superstorm is starting to fade. The number of Americans seeking unemployment benefits fell 23,000 to a seasonally adjusted 393,000 last week, the Labor Department said.