For the first time in months, several key indicators are pointing in the right direction. Holiday spending is holding up well, exports are picking up, new jobless claims are steadily falling, the economy is adding jobs, consumer confidence is rising and housing is bottoming out.Justin Sullivan/Getty Images
U.S. economic growth was slower than previously estimated in the third quarter on a sharp drop in health care spending, but stronger business investment and a fall in inventories pointed to a pickup in output in the current period.
Gross domestic product grew at a 1.8 per cent annual rate in the third quarter, the Commerce Department said in its final estimate on Thursday, down from the previously estimated 2 per cent.
Economists had expected growth to be unrevised at 2 per cent. Though spending on health care dropped by $2.2-billion, spending on durable goods was stronger than previously estimated, indicating household appetite to consume remains healthy.
Health care spending had previously been reported to have increased at a $19.7-billion rate. Health care spending subtracted about 0.1 percentage point from the GDP change in the final revision, whereas the previous estimate had it adding 0.61 percentage point to growth.
Even as much of the rest of the world is slowing down and a mild recession is forecast in Europe next year, the U.S. economy remains resilient.
The labour market is improving, households continue to spend, home building is picking up and factory output is expanding, putting the economy on course for at least a 3-per-cent growth pace in the fourth quarter.
That would be the fastest pace in 18 months.
Despite the downward revision, last quarter's growth is still a step-up from the April-June period's 1.3-per-cent pace. Part of the pick-up in output during the last quarter reflects a reversal of factors that held back growth earlier in the year.
A jump in gasoline prices had weighed on consumer spending earlier in the year, and supply disruptions from Japan's big earthquake and tsunami in March had curbed auto production.
The government revised consumer spending to a 1.7-per-cent growth rate from 2.3 per cent because of adjustments to health care services, in particular non-profit hospitals.
Spending on durable goods was, however, revised up to a 5.7 per cent pace from 5.5 per cent.
Business inventories dropped $2.0-billion, which sliced off 1.35 percentage points from GDP growth. Inventories had previously been estimated to have declined $8.5-billion.
The drag from inventories was offset by strong business spending, which increased at a 15.7 per cent rate, instead of 14.8 per cent.
Excluding inventories, the economy grew at a still brisk 3.2-per-cent rate, revised down from 3.6-per-cent pace. Final sales increased at a 1.6-per-cent pace in the second quarter.
The Department also said after-tax corporate profits increased at a 2.7-per-cent rate, revised down from 3.0 per cent. After tax profits increased at a 4.3 rate in the second quarter.
Export growth was stronger than previously estimated, rising at a 4.7-per-cent rate instead of 4.3 per cent. Imports increased at a much faster 1.2-per-cent rate rather than 0.5 per cent.
Trade contributed 0.43 percentage point to GDP growth. Elsewhere, residential construction grew at a 1.3-per-cent rate instead of 1.6 per cent. Government spending fell at an unrevised 0.1 per cent.
The GDP report also showed some inflation pressures in the economy. A price index for personal spending rose at an unrevised 2.3-per-cent rate in the third quarter.
That compared to a 3.3-per-cent rate in the second quarter. A core inflation measure, which strips out food and energy costs, rose at a 2.1-per-cent rate rather than 2.0 per cent. The measure – closely watched by the Federal Reserve – grew at a 2.3-per-cent rate in the prior three months.