The U.S. economy grew faster than initially thought in the third quarter as restocking by businesses provided a big boost, but consumer and business spending were revised lower in a sobering reminder of the recovery's underlying weakness.
xpanded at a 2.7 percent annual rate, the Commerce Department said on Thursday, as export growth also helped to offset the weakest consumer spending and first drop in business investment in more than a year.
While the growth pace was much quicker than the 2 percent rate the government estimated last month and the best since the fourth quarter of 2011, it was hardly a sign of strength as the lift from inventories will likely be lost in the fourth quarter.
The economy is also bracing for deep cuts in government spending and tax increases early next year, known as the , which could suck $600 billion from the economy and fuel a fresh recession. (Read More: )
Economists polled by Reuters had expected GDP growth to be raised to a 2.8 percent pace.
"The bulk of the (GDP) rise is inventory adjustment," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. "So I think the market may look past this number, thinking real GDP in the economy is a bit lower. It was also concerning to see consumer spending revised down."
A separate report from the Labor Department showed initial claims for state unemployment benefits dropped 23,000 to a seasonally adjusted 393,000, but still staying elevated after superstorm Sandy.
The storm, which ripped through the East Coast in late October, has distorted initial claims data in recent weeks, making it hard to get a clear pulse of the labor market, whose struggles have underscored the economy's weakness.
Inventories Add, Not Subtract
Business inventories added 0.77 percentage point to third-quarter GDP growth. They were previously estimated to have subtracted 0.12 percentage point.
Excluding inventories, GDP rose at a revised 1.9 percent rate, underscoring sluggish demand. Final sales of goods and services produced in the United States had been previously estimated to have increased at a 2.1 percent pace.
A smaller trade deficit was also a factor behind the upward revision to GDP as export growth outpaced a rise in imports. But the trend in exports is unlikely to be sustained given slowing global demand, especially in China and debt troubled Europe.
Trade contributed 0.14 percentage point to GDP growth instead of subtracting 0.18 percentage point, as previously reported.