The U.S. 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 Dec. 15-16 policy meeting.
