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U.S. revises downward its third-quarter GDP estimate

The Commerce Department originally said the economy grew at a 2.5% annual pace but now says it was only 2%. Companies cut inventories and invested less than previously thought.

November 23, 2011|By Jeffry Bartash
  • Consumer spending rose 2.3% in the third quarter, down from an original Commerce Department estimate of 2.4%. Above, a man tries on hats at a store in New York.
Consumer spending rose 2.3% in the third quarter, down from an original… (Spencer Platt, Getty Images )

Reporting from Washington — The U.S. economy grew at a slower pace than originally estimated in the third quarter, mainly because companies reduced inventories and did not invest as much.

The Commerce Department cut its calculation of gross domestic product to 2% growth in the July-to-September period from an initial reading of 2.5%. Economists surveyed by MarketWatch expected the government to trim its estimate to 2.3%.

Still, the 2% growth rate was the fastest since the fourth quarter of 2010. Most economists predict that the U.S. economy will grow even faster in the final three months of this year — 2.5% based on the latest MarketWatch forecast.

The economy only grew at a 1.3% rate in the second quarter and 0.4% in the first quarter.

The government's second estimate of GDP includes more data from the private sector that was not fully available earlier, such as corporate profits, inventory levels and trade data. As a result, it paints a more accurate picture of U.S. growth.

Although the economy accelerated in late summer, it is still not growing fast enough to create jobs for most Americans trying to get back to work. The unemployment rate stood at 9% in October.

What's more, the U.S. is growing at a much slower pace than usual in a recovery. Growth rates of 3% or more are more common.

In the third quarter, consumer spending rose 2.3%, down from an original reading of 2.4%. Consumer spending typically accounts for two-thirds or more of GDP.

Business investment, initially reported to have risen 4.1%, actually fell 0.9% in the third quarter, according to the revised data.

The downward revision was largely linked to a decline in inventories, which fell $8.5 billion after jumping $39.1 billion in the second quarter.

In addition, investment in nonresidential equipment rose 14.8% in the third quarter compared with a first reading of 16.3%.

Corporate profits also slowed in the third quarter. Companies boosted their profits by $39.8 billion, compared with a $61.2-billion increase in the second quarter.

Exports rose 4.3% instead of 4% as originally reported. Manufacturers have led the U.S. recovery since the end of the last recession, particularly by boosting exports.

Yet imports rose a much smaller 0.5% compared with an initial reading of 1.9%. Imports subtract from GDP.

Excluding imports, final sales of goods and services purchased in the U.S. were left unchanged at a 3.6% increase. That category is viewed as a good gauge of domestic demand.

Government spending at all levels fell 0.1% in the third quarter. It was originally reported as flat.

Bartash writes for

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