WASHINGTON (BLOOMBERG) - The U.S. economy expanded at a faster pace in the third quarter than previously reported, reflecting a smaller hit from efforts to rein in bloated inventories.
Gross domestic product, the value of all goods and services produced, rose at a 2.1 per cent annualized rate, up from an initial estimate of 1.5 per cent, Commerce Department figures showed Tuesday in Washington. The report also showed corporate profits slumped while worker incomes jumped.
The consumer continues to power the U.S. economy, with cheap gasoline giving households the means and greater job security giving them the confidence to spend. Still, company stockpiles remained elevated compared with sales, indicating that new orders and production will cool further to clear shelves and warehouses heading into 2016.
"You're getting more growth in the third quarter and perhaps that could come at the expense of less growth in the next couple of quarters," Jim O'Sullivan, chief U.S. economist at High Frequency Economics Ltd. in New York, said before the report. Still, the backdrop for consumer spending remains positive, as "the labour market is continuing to improve, which augurs well for wage income to accelerate."
The rate of growth matched the median forecast of economists surveyed by Bloomberg. Estimates ranged from 1.5 per cent to 2.4 per cent. The GDP figure is the second of three for the quarter, with the other release scheduled for late December when more information can be incorporated.
The economy grew at an average 2.3 per cent pace in the first half of the year as a 3.9 per cent surge in the second quarter more than made up for a first-quarter slowdown caused by bad weather, a labor dispute at West Coast ports and weakness in the energy industry.
The revisions to third-quarter GDP showed the pickup in growth estimates last quarter was concentrated in stockpiles. Inventories grew at a US$90.2 billion (S$127.8 billion) annualised rate from July through September, almost twice as much as previously estimated. Still, the slowdown in stockpiling from the second quarter, when it grew at a US$113.5 billion rate, reduced growth by 0.6 percentage point. That compared to a previously reported drag of 1.4 points.
Inventories climbed earlier this year as weak growth abroad and a stronger dollar left manufactured goods to pile up in U.S, O'Sullivan said. Bloated stockpiles bolster the headline growth figure, while a drag on GDP occurs as companies trim those inventories to match demand.
Household consumption, which accounts for almost 70 per cent of the economy, grew at a 3 per cent annualized rate, less than the previously estimated 3.2 per cent.
Tuesday's report also offered a first look at corporate profits. Pretax earnings dropped 1.1 per cent in the third quarter after a 3.5 per cent gain in the previous period. Corporate earnings were down 4.7 per cent from the same time last year, the largest 12-month drop since the second quarter of 2009.
Payrolls climbed by 271,000 in October, the strongest increase this year, while the jobless rate fell to a seven-year low of 5 per cent. Meanwhile applications for unemployment benefits are bouncing around the lowest level in about four decades.