US third-quarter growth revised up to 3.6 per cent

WASHINGTON - The US economy grew faster than initially estimated in the third quarter as businesses aggressively accumulated stock, but underlying domestic demand remained sluggish.

Gross domestic product grew at a 3.6 per cent annual rate instead of the 2.8 per cent pace reported earlier, the Commerce Department said on Thursday. Economists polled by Reuters had expected output would be revised up to only a 3.0 per cent rate.

The third-quarter pace is the fastest since the first quarter of 2012 and marked an acceleration from the April-June period's 2.5 per cent rate.

Businesses accumulated $116.5 billion (71.2 billion pounds) worth of inventories, the largest increase since the first quarter of 1998. That compared to prior estimates of only $86 billion.

Inventories accounted for a massive 1.68 percentage points of the advance made in the July-September quarter, the largest contribution since the fourth quarter of 2011.

The contribution from inventories had previously been estimated at 0.8 percentage point. Stripping out inventories, the economy grew at a 1.9 per cent rate rather than the 2.0 per cent pace estimated last month.

A gauge of domestic demand rose at just a 1.8 per cent rate.

The strong inventory accumulation in the face of a slowdown in domestic demand means businesses will need to draw down on stocks, which will weigh on GDP growth this quarter.

Fourth quarter growth estimates are already on the low side, with a 16-day shutdown of the government in October expected to shave off as much as half a percentage point from GDP.

Consumer spending, which accounts for more than two-thirds of US economic activity, was revised down to a 1.4 per cent rate, the lowest since the fourth quarter of 2009. Spending had previously been estimated to have increased at 1.5 per cent pace.

Consumer spending grew at a 1.8 per cent rate in the April-June period.

There were upward revisions to business spending, but estimates for residential construction were lowered. The trade deficit was larger than previously estimated, resulting in trade being neutral to growth in the third quarter.