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WRAPUP 2-U.S. economy grows steadily in Q3; consumer spending solid in November

Lucia Mutikani

November@ (Adds consumer spending data)

* Third-quarter GDP growth unrevised at 2.1%

* Corporate profits revised sharply down

* Consumer spending increased 0.4% in November

WASHINGTON, Dec 20 (Reuters) - U.S. economic growth nudged up in the third quarter, the government confirmed on Friday, and there are signs the economy more or less maintained the moderate pace of expansion as the year ended, supported by a strong labor market.

Other data on Friday showed consumer spending increased solidly in November, adding to a string of upbeat data that have helped to put recession fears, which gripped financial markets in the summer, on the back-burner.

The economy appears to have received a respite from the Federal Reserve's three interest rate cuts this year. The U.S. central bank last week kept rates steady and signaled borrowing costs could remain unchanged at least through 2020.

Gross domestic product increased at a 2.1% annualized rate, the Commerce Department said in its third estimate of third-quarter GDP. That was unrevised from November's estimate. The economy grew at a 2.0% pace in the April-June period.

Despite the unrevised reading, which was in line with economists' expectations, consumer spending was stronger than previously reported. There were also upgrades to business spending on nonresidential structures such as power infrastructure, which limited the drop in overall business investment. That offset downward revisions to investment in homebuilding and inventory accumulation. Imports, which are a drag to GDP growth, were higher than previously estimated.

Growth estimates for the fourth quarter range from as low as a 1.3% rate to as high as a 2.3% pace. Though growth has been relatively strong, economists did not expect the economy to achieve the Trump administration's 3.0% target this year.

The economy grew 2.6% in the first half. Growth has slowed from the 3.1% rate notched in the first three months of the year in part because of the 17-month trade war between the United States and China and as the stimulus from last year's $1.5 trillion tax cut package fades.

When measured from the income side, the economy grew at a 2.1% rate in the last quarter, rather than the 2.4% pace estimated in November. Gross domestic income (GDI) increased at a rate of 0.9% in the second quarter.

The revision to the income side of the growth ledger reflected a downgrade to corporate profits.

After-tax profits without inventory valuation and capital consumption adjustment, which corresponds to S&P 500 profits, were revised down to show them declining $23.1 billion, or at a rate of 1.2%. Profits were previously reported to have decreased $11.3 billion, or at a rate of 0.6% in the third quarter.

They were in part held down by legal settlements with Facebook and Google. Profits increased at a 3.3% rate in the second quarter.

The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic activity, increased at a 2.1% rate in the July-September period. That was down from the previously reported 2.3% pace and an acceleration from a 1.4% growth rate in the second quarter.

U.S. financial markets were little moved by the data.

MODERATE GROWTH PATH

The economy appears to have maintained its moderate growth speed in the fourth quarter. In a second report on Friday, the Commerce Department said consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.4% last month as households stepped up purchases of motor vehicles and spent more on healthcare.

Consumer spending increased 0.3% in October. The lowest unemployment rate in nearly half a century is supporting consumer spending. But inflation remained tame last month.

While the near-term economic outlook is brightening, risks continue to hover over the longest expansion in history, now in its 11th year. Boeing's decision this week to suspend production of its best-selling 737 MAX jetliner in January as fallout from two fatal crashes of the now-grounded aircraft drags into 2020.

That could pressure the fragile manufacturing sector, which was starting to stabilize amid easing tensions in the U.S.-China trade war.

Economists estimate that Boeing's biggest assembly-line halt in more than 20 years, which is expected to wreak havoc on supply chains, could cut first-quarter 2020 gross domestic product growth by at least half a percentage point.

In the GDP report, growth in consumer spending was raised to a 3.2% rate in the third quarter from the previously reported 2.9% pace. Inventories rose at a $69.4 billion pace instead of the $79.8 billion rate reported last month.

As a result of the smaller build, inventories were neutral to GDP growth last quarter, instead of adding 0.17 percentage point as previously reported. The trade deficit increased at a $990.1 billion rate instead of the previously reported $988.3 billion pace. The wider trade gap, which reflected higher imports, subtracted 0.14 percentage point from GDP growth, rather than the 0.11 percentage point estimated last month.

Business investment dropped at a 2.3% rate in the third quarter, rather than contracting at a 2.7% pace as previously reported. Spending on nonresidential structures such as mining exploration, shafts and wells declined at a 9.9% rate instead of the previously reported 12.0% pace.

Growth in residential investment was lowered to a 4.6% rate from the 5.1% pace estimated last month. Government spending growth was raised to a 1.7% rate from a 1.6% pace.

(Reporting by Lucia Mutikani; Editing by Andrea Ricci)