WASHINGTON: The US economy grew at its fastest pace in more than two years in the third quarter, powered by robust business spending, and is poised for what could be a modest lift next year from sweeping tax cuts passed by Congress this week.
Gross domestic product expanded at a 3.2% annual rate last quarter, the Commerce Department said in its third GDP estimate on Thursday. While that was slightly down from the 3.3% rate reported last month, it was the quickest pace since the first quarter of 2015 and was a pickup from the second quarter's 3.1% rate.
It also marked the first time since 2014 that the economy experienced growth of 3% or more for two straight quarters. But the growth pace for the July-September period likely overstates the health of the economy.
An alternate measure of growth, gross domestic income, rose at a 2% rate in the third quarter. GDI was previously reported to have increased at a 2.5% rate.
The average of GDP and GDI, also referred to as gross domestic output and considered a better measure of economic growth, increased at a 2.6% rate instead of the previously reported 2.9% pace.
Republicans in the US Congress this week approved a broad package of tax cuts in what was the largest overhaul of the tax code in 30 years, handing President Donald Trump a major legislative victory. Mr Trump is expected to soon sign the legislation, which has $1.5-trillion in tax cuts.
Economists are forecasting a modest economic boost from the tax cuts, which includes slashing the corporate income tax rate to 21% from 35%. The fiscal stimulus will come while the economy is at full employment, which raises the risk of it overheating.
Economists had expected that third-quarter GDP growth would be unrevised at a 3.3% rate. Growth in the third quarter was also boosted by an accumulation of unsold goods and a rebound in government investment.
Growth in business investment in equipment was raised to a 10.8% pace, the fastest in three years, from the previously reported 10.4% rate.
Businesses accumulated inventories at a pace of $38.5 billion in the third quarter, instead of the previously reported rate of $39.0 billion. Inventory investment contributed 0.79 percentage points to third-quarter GDP growth, little changed from the previously reported 0.80 percentage points.
Growth in consumer spending, which accounts for more than two-thirds of the US economy, was revised down by one-tenth of a percentage point to a 2.2% rate in the third quarter. Consumer spending increased at a robust 3.3% rate in the second quarter.
Data on retail sales suggests consumer spending accelerated in October and November. Spending is being supported by steady wage gains and household savings.
The government said after-tax corporate profits surged at a 5.7% rate last quarter instead of the previously reported 5.8% rate. Profits rose at only a 0.1% pace in the second quarter. Undistributed profits jumped at a 13.9% rate after declining for two straight quarters, suggesting that companies were anticipating deep tax cuts.