US economy grows faster than expected

The US economy grew faster than initially thought in the third quarter, notching its best performance in two years, buoyed by strong consumer spending and a surge in soybean exports.

Gross domestic product increased at a 3.2 per cent annual rate instead of the previously reported 2.9 per cent pace, the Commerce Department said in its second GDP estimate on Tuesday.

Growth was the strongest since the third quarter of 2014 and followed the second quarter’s anemic 1.4 per cent pace. Growth was also lifted by upward revisions to business investment in structures and home building, underscoring the economy’s solid fundamentals that further bolster the case for the Federal Reserve to raise interest rates next month.

Data ranging from housing to retail sales and manufacturing suggest the economy retained its momentum early in the fourth quarter even as exports appear to be faltering against the backdrop of renewed dollar strength and a fading soybean boost.

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Economists had expected that third-quarter GDP growth would be revised up to a 3 per cent rate.

When measured from the income side, the economy grew at a 5.2 per cent clip amid a rebound in corporate profits and rising household incomes. That was the fastest pace of increase in gross domestic income since the second quarter of 2014 and followed a 0.7 per cent rate of increase in the second quarter. The average of

GDP and GDI (Gross Domestic Income), which some economists consider to be a more accurate measure of current economic growth and a better predictor of future output, increased at a 4.2 per cent rate in the third quarter, the fastest pace in two years. That followed a 1.1 per cent rate of increase in the second quarter.

The dollar rose to a session high against a basket of currencies after the data, while prices for US government bonds fell US stock index futures gained.

The third-quarter revision also showed a much more favourable growth profile for the economy. The boost from inventories was not as big as previously estimated, which suggests that businesses are not sitting on piles of unwanted goods.

This means they will have more scope to place new orders, which augurs well for economic growth in the coming quarters. The sharp acceleration in GDP in the last quarter should quash any lingering fears that the economy was at risk of stalling after growth averaged just 1.1 per cent in the first half. That together with a labour market that is near full employment and steadily rising inflation could leave the Fed comfortable to hike interest rates at its December meeting. – Reuters