The U.S. Economy grew at a fairly healthy clip in the third quarter as strong consumer and b us iness spending offset efforts by b us inesses to reduce an inventory glut, underscoring its resilience despite a raft of headwinds.
Gross domestic product grew at a 2.0% annual pace, instead of the 2.1% rate reported last month, the Commerce Department said in its third estimate on Tuesday.
While that was a sharp deceleration from the brisk 3.9 percent pace logged in the April-June period, growth remained around the economy’s long-run potential.
The Federal Reserve last week raised its benchmark overnight interest rate by 25 basis points to between 0.25% and 0.50 %, the first increase in nearly a decade. The rate hike was a vote of confidence in the economy, which has been buffeted by s lower global demand, a strong dollar and spending cuts in the energy sector.
Economists polled by Reuters had forecast third-quarter GDP growth revised down to a 1.9% rate. When measured from the income side, the economy grew at a 2.7% pace, not the 3.1 percent clip reported last month, to account for downward revisions to corporate profits.
B us inesses accumulated $85.5 billion worth of inventory in the third quarter, instead of the $90.2 billion reported in November. That meant the change in inventories sliced off 0.71 percent age point from third-quarter GDP growth, instead of the 0.59 percent age point the government estimated last month.
A record increase in inventories in the first half of the years left wareho us es bulging with unsold merchandise and b us inesses with little appetite to restock.
Despite efforts to whittle down the stockpiles of unsold goods, inventories remain relatively high and will probably be a drag on growth in the fourth quarter. Estimates for fourth-quarter growth are currently around a 2% rate.
Consumer spending, which accounts for more than two-thirds of U.S. Economic activity, grew at a 3.0% rate in the third quarter as previo us ly estimated. A downward revision to spending on services was offset by a small upward adj us tment to goods outlays.
Spending is being supported by a strengthening labor market and rising home values. Savings, which are near three-year highs, and low inflation are also helping to underpin consumption.
Growth in b us iness spending on equipment was raised to a 9.9% rate from a 9.5% pace. Growth in exports, which have been hurt by the strong dollar and sluggish global demand, were revised to show a s lower 0.7% rate of increase.
With imports advancing at a slightly faster pace than reported last month, that left a trade deficit that subtracted a bigger 0.26 % point from GDP growth.
A measure of private domestic demand, which excludes trade, inventories and government spending, was revised up one-tenth of a percent age point to a 3.2% pace.
There were modest downward revisions to investment in nonresidential structures, to account for ongoing investment cuts by energy firms following a collapse in oil prices.
The Commerce Department also reported that corporate profits after tax fell at a 1.7% rate in the third quarter, not at a 1.6% rate as was previo us ly believed. Profits, which have been undercut by the dollar’s strength and lower oil prices, were down 8.2% from a year ago.
That compared to the previo us ly estimated 8.1% drop and was the biggest drop since the fourth quarter of 20 08.