US economy grew at robust 4.1% pace in third quarter

The US economy grew at a robust 4.1 percent annual rate in the third quarter, much faster than previously estimated, the Commerce Department said Friday.

Visitors shop at Christkindlmarket Chicago on December 4, 2013

It was the strongest growth in the world's largest economy since the fourth quarter of 2011, when the pace hit 4.9 percent.

The upward third-quarter revision was largely due to consumer spending that was much stronger than previously estimated, the department said.

The department's third and final estimate of gross domestic product growth was sharply higher than the previously estimated 3.6 percent, as well as the 2.8 percent initially estimated.

The GDP revision surprised analysts who on average expected the 3.6 percent figure would be unchanged.

In the second quarter, GDP increased at a 2.5 percent rate.

Consumer spending, which accounts for about two-thirds of activity in the world's largest economy, rose 2.0 percent in the July-September period, instead of the 1.4 percent increase previously estimated.

Spending on services, the bulk of the US economy, rose 0.7 percent, with improved gains notably seen in health care and recreation services. The prior estimate was zero growth.

Inventory growth accounted for about 40 percent of the growth in the third quarter, compared with about 15 percent in the second quarter.

"Not only was third-quarter GDP above 4.0 percent for only the third time since the expansion began in 2009, the mix of growth looks better (though still not great) than a month ago after the first revision," said Chris Low and Jay Morelock of FTN Financial in a research note.

"Preconditions are in place for much stronger economic expansion in 2014," said Scott Hoyt of Moody's Analytics.

Hoyt highlighted that forward-looking indicators are mixed, with rapid inventory accumulation a drag, but expectations for faster consumer spending and continued advances in residential investment still positives.

"Consumer spending is increasing at about the same pace as overall GDP," he said.

The GDP report came two days after the Federal Reserve scaled back its asset-purchase program, known as quantitative easing (QE), after determining that the US economy was improving sufficiently to withstand a smaller stimulus.

The Fed will reduce monthly bond purchases in January by $10 billion, to $75 billion.

"The strong Q3 growth performance vindicates the Fed's decision to begin tapering QE3," said Sal Guatieri of BMO Capital Markets Economics.

"It also suggests the economy is poised for stronger growth in the new year than the middling 2.0 percent pace of the past year, meaning the tapering process will continue."

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