The economy grew faster than realized in the third quarter, the Commerce Department reported Tuesday.
U.S. real gross domestic product grew at a 3.9 percent annual rate, adjusted for seasonal variation, according to the Bureau of Economic Analysis’ second estimate of output. Wall Street economists had expected the growth rate to be revised down.
Following second quarter growth of 4.6 percent, the U.S. is now enjoying the strongest two-quarter expansion in the past decade, if Tuesday’s results hold up. The BEA will release a final estimate on Dec. 23.
That burst of economic growth, however, follows a stunning 2.1 percent decline in GDP in the first quarter.
Tuesday’s second estimate of output, which includes more and better data, showed that consumer spending and investment grew faster than originally thought. The decline in business purchases of inventories was also smaller than first estimated.
The strong third-quarter growth was driven by strong consumer spending, especially on big-ticket items. It was also attributable to an unexpected surge in defense spending by the federal government, as well as growth in exports and the housing market.
The details of the report hinted that the U.S. economy is improving heading into the winter.
The headline growth would have been even higher, 4.1 percent annually, if not for the decline in inventory spending. But spending on inventories generally is not predictive of future growth.
And inflation remained low throughout through September, with overall consumer prices up 1.5 percent.
Inflation continuing to run below the Federal Reserve’s 2 percent target is good news for investors worried that accelerating growth and the falling unemployment rate could lead the central bank to raise interest rates earlier.
Tuesday’s report will allay fears that the U.S. economy is fragile and exposed to headwinds from slowing growth overseas. McGladrey Chief Economist Joseph Brusuelas tweeted in response to the upward revision that it shows “real momentum heading into [the fourth quarter].”
