The Commerce Department reported Thursday that the U.S. economy grew by 2.7 percent during the third quarter, up from its previous estimate of a 2.0 percent expansion. The sharp upward revision was largely attributed to an increase in government spending and businesses exporting more goods and stockpiling inventories more than previously calculated.
The latest GDP report, the sum of all the goods and services in the U.S., was the second of two regularly scheduled updates that factors-in new data not available during prior estimates.
Inventories rose by nearly 50 percent from the original mark of $41.4 billion to $61.3 billion. Exports were upwardly revised from a 1.6 percent contraction to 1.1 percent expansion.
On the downside, business investments and consumer spending were lower than original figures for the July-to-September quarter. Consumer spending during the third quarter was slashed from 2 percent to 1.4 percent and capital investments by business dropped to show a 2.2 percent decline rather than the 1.3 percent drop originally reported.
The rise in Q3 follows more sluggish growth of 2 percent in the first quarter and only 1.3 percent growth in the second quarter. Optimism for the fourth quarter remains tempered, however, as threat of the States plunging over the so-called “fiscal cliff,” a series of tax hikes and spending cuts set to go into effect in January, is keeping businesses and consumers cautious on spending.
Businesses lining their shelves with inventory in one quarter can have a dramatic impact on the subsequent quarter if demand is not high enough to require further re-stocking. Economists and investors alike are closely watching the situation in Europe for signs of stabilization in their faulty economies and for lawmakers on Capitol Hill to breech the impasse and find a solution for the looming fiscal cliff. At this point, the outlook for the fourth quarter may appear soft, but any substantial developments on either of those two fronts can have a stark impact.
Wall Street is trading tentatively with the Dow Jones fluctuating back and forth from positive and negative territory after initially jumping higher at the opening bell.