US GDP revised up as consumers and government spending drive growth



The US economy grew faster than previously estimated in the third quarter, as consumer spending picked up and state and local governments added to growth for the first time in almost three years.

Growth in the three months to the end of September expanded at a 3.1pc annual rate, according to the Commerce Department's final estimate. This was revised up from a previous estimate of 2.7pc and is a sharp improvement over its initial estimate of 2pc.

The revision reflected stronger consumer spending, which accounts for about 70pc of America's economy. The government said spending grew at an annual rate of 1.6pc in the third quarter, above its previous estimate of 1.4pc.

The Commerce Department also revised up its estimate of spending by state and local governments to show a gain of 0.3pc - the first quarterly increase in three years. State and local governments had previously been slashing payrolls and other spending in the aftermath of the Great Recession.

Total (NYSE: TOT - news) government spending grew at 3.9pc annual rate last quarter, reflecting a surge in defense spending.

However, economists said that disruptions from Superstorm Sandy in the Northeast, and uncertainty over the "fiscal cliff" of tax increases and deep spending cuts were likely holding back growth in the final quarter. Many analysts predict an annual growth rate of just 1.5pc.

Growth at that level is considered too weak to significantly lower the unemployment rate, which was 7.7pc in November (Xetra: A0Z24E - news) .

"The GDP upward revision was mostly a function of exports. On the face of it this shows consumer spending had a touch more momentum headed into the holiday season, but we are still looking at a modest outcome in the third quarter," said Tom Porcelli at RBC Capital markets.

"Having said that, it is important to note that this is very backward looking data and we already have a sense that activity in the fourth quarter started robust, but slowed dramatically. We already know momentum had faded."

Separate data on Thursday showed that the number of Americans claiming jobless benefits for the first time increased by 17,000 to a seasonally adjusted 361,000.

Tanweer Akram at ING Investment Management, said: "Jobless claims have shown a trend of slow declines as the labor market gradually heals. We see some signs of improvement in the labor market and that's likely to continue as housing gradually recovers and as firms slowly start to hire.

"The pace of hiring is still disappointing with firms concerned about the impact of the fiscal cliff on demand. Our view is that the unemployment rate will remain well above 7pc through the coming year and well above the Fed's numerical target of 6.5pc."

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