With consumer spending and non-residential fixed investment rising more than estimated just two weeks ago, the Commerce Department released a report on Friday showing an unexpected upward revision to the pace of U.S. economic growth in the third quarter of 2013.
The Commerce Department said gross domestic product increased by an upwardly revised 4.1 percent in the third quarter compared to the 3.6 percent growth estimated earlier this month.
The upward revision came as a surprise to economists, who had widely expected the pace of GDP growth to be unrevised.
Sal Guatieri, Senior Economist at BMO Capital Markets, said, "While inventory investment still contributed a hefty 1.7 percentage points to growth, it's looking increasingly likely that most of the increase was intentional, suggesting less rundown in future quarters."
The faster than previously estimated GDP growth was partly due to a notable upward revision to the growth in consumer spending.
The report showed that consumer spending increased by 2.0 percent compared to the previous estimate of 1.4 percent growth. The increase now reflects an acceleration from the 1.8 percent growth seen in the second quarter.
Non-residential fixed investment also increased by an upwardly revised 4.8 percent versus the 3.5 percent growth previously estimated and the 4.7 percent increase seen in the second quarter.
However, the Commerce Department noted that the upward revisions were partly offset by a downward revision to residential fixed investment, which still jumped by 10.3 percent.
The final reading on third quarter GDP growth reflects a notable acceleration from the 2.5 percent growth seen in the second quarter.
The report said the faster growth primarily reflected accelerations in private inventory investment, government spending and consumer spending as well as a deceleration in imports, which are a subtraction in the calculation of GDP.
"The strong Q3 growth performance vindicates the Fed's decision to begin tapering QE3," Guatieri said. "It also suggests the economy is poised for stronger growth in the new year than the middling 2.0% pace of the past year, meaning the tapering process will continue."
The Commerce Department said its reading on core consumer prices, which exclude food and energy prices, rose by 1.4 percent in the third quarter, reflecting a modest downward revision from the previously reported 1.5 percent growth.
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