US economy accelerates sharply in third quarter

Wallets returned: 8 out of 12.

Upon returning the lost wallet he found near City Hall, Richard Hamilton, a 36-year-old government worker, said "I think you'd be very surprised to see how many New Yorkers would actually return a wallet. Two 17-year-olds "flipped through all the papers and saw the family photo and thought, 'Aw, he has two kids. We have to give this back.'" However, a young man bought cigarettes at a convenience store with the money in the wallet.

WASHINGTON - The US economy grew at its quickest pace in 11 years in the third quarter, the strongest sign yet that growth has decisively shifted into higher gear.

The Commerce Department on Tuesday revised up its estimate of gross domestic product growth to a 5.0 per cent annual pace, citing stronger consumer and business spending than it had previously assumed.

It was the fastest growth pace since the third quarter of 2003. The economy was previously reported to have expanded at a 3.9 per cent rate.

GDP growth has now been revised up by a total of 1.5 percentage points since the first estimate was published in October. Big revisions are not unusual as the government does not have full information when it makes its initial estimates.

US stock index futures extended their gains after the report, while US Treasury debt yields rose slightly. The dollar rose to a fresh eight-year high against a basket of currencies.

The economy expanded at a 4.6 per cent rate in the second quarter, meaning it has now experienced the two strongest back-to-back quarters of growth since 2003. Economists polled by Reuters had expected growth would be raised to a 4.3 per cent pace.

But the pace of growth likely slowed in the fourth quarter.

In a second report, the Commerce Department said non-defence capital goods orders excluding aircraft, a closely watched proxy for business spending plans, was unchanged after declining 1.9 per cent in October.

The continued weakness in the so-called capital goods orders is at odds with industrial production data, which has shown strong momentum in the manufacturing sector.

But a rapidly strengthening labour market and lower gasoline prices should provide the economy with sufficient momentum in 2015 and keep the Federal Reserve on course to start raising interest rates by the middle of next year.

Underscoring the economy's firming fundamentals, growth in domestic demand was revised up to a 4.1 per cent pace in the third quarter instead of the previously reported 3.2 per cent pace. It was the fastest pace since the second quarter of 2010.

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 3.2 per cent pace, the fastest since the fourth quarter of 2013, instead of the previously reported 2.2 per cent rate.

Growth in business investment was raised to an 8.9 per cent pace from a 7.1 per cent rate, with a stronger pace of spending than previously thought on equipment, intellectual property products and nonresidential structures accounting for the revision.

Inventories were also revised higher, with restocking now being neutral to GDP growth instead of being a mild drag. That also helped to offset downward revisions to export growth.

But inventories could undercut output in the fourth quarter.

Spending on residential construction was also revised higher, as were government outlays. Export growth was cut to a 4.5 per cent rate from the previously reported 4.9 per cent pace, while imports were also revised down.