World Economy

US Economy Grows 2% in Q3

US Economy Grows 2% in Q3US Economy Grows 2% in Q3

The US economy grew at a fairly healthy clip in the third quarter as strong consumer and business spending offset efforts by businesses to reduce an inventory glut, underscoring its resilience despite a raft of headwinds.

Gross domestic product grew at a 2.0% annual pace, instead of the 2.1% rate reported last month, the Commerce Department said in its third estimate on Tuesday, Reuters reported.

While that was a sharp deceleration from the brisk 3.9% pace logged in the April-June period, growth remained around the economy's long-run potential.

The Federal Reserve last week raised its benchmark overnight interest rate by 25 basis points to between 0.25% and 0.50%, the first increase in nearly a decade.

The rate hike was a vote of confidence in the economy, which has been buffeted by slower global demand, a strong dollar and spending cuts in the energy sector.

US Treasuries extended losses after the data, sending yields to session highs. The dollar rose against a basket of currencies.

When measured from the income side, the economy grew at a 2.7% pace, not the 3.1% rate reported last month, to account for downward revisions to corporate profits.

Businesses accumulated $85.5 billion worth of inventory in the third quarter, instead of the $90.2 billion reported in November. That meant the change in inventories sliced off 0.71 percentage point from third-quarter GDP growth, instead of the 0.59 percentage point the government estimated last month.

A record increase in inventories in the first half of the years left warehouses bulging with unsold merchandise and businesses with little appetite to restock.

Despite efforts to whittle down the stockpiles of unsold goods, inventories remain relatively high and will probably be a drag on growth in the fourth quarter. Estimates for fourth-quarter growth are currently around a 2% rate.

Consumer spending, which accounts for more than two-thirds of US economic activity, grew at a 3.0% rate in the third quarter as previously estimated. A downward revision to spending on services was offset by a small upward adjustment to goods outlays.