The U.S. economy expanded at a 2.6% annual rate in the third quarter, marking a pickup in growth that may extend into 2011 as companies and consumers gain confidence to spend.
The revised increase in gross domestic product compares with a 2.5% estimate issued last month and was less than the median forecast of a 2.8% in a Bloomberg News survey, figures from the Commerce Department showed today. Inventories rose more than initially reported, while the rise in household purchases was revised down.
Growing incomes, the continuation of Bush-era tax cuts and an improving labor market may encourage Americans to boost their spending, which accounts for about 70% of the world’s largest economy. Today’s figures showed a measure of inflation rose at the slowest pace in more than 50 years, underscoring the Federal Reserve’s strategy of extending record monetary stimulus.
Economists’ projections ranged from gains of 2.5%-3.3%, according to the Bloomberg survey of 71 economists. Today’s report is the third and final for the quarter after a 1.7% pace in the previous three months.
In the past two weeks, economists have boosted forecasts for fourth-quarter growth after the government reported better-than-projected retail sales for November and the Obama administration reached a compromise with congressional Republicans to extend tax cuts put in place by former President George W. Bush.
JPMorgan Chase & Co. chief U.S. economist Michael Feroli on Dec. 14 revised his fourth-quarter growth estimate to a 3.5% pace from a prior estimate of 2.5%.
The economy hasn’t been growing fast enough to bring down the unemployment rate, currently at 9.8% and a concern of Fed policy makers. The central bank’s Open Market Committee on Dec. 14 repeated its pledge to leave the benchmark interest rate low for an "extended period" and retained a $600-billion U.S. Treasury-purchase program through June.
Inflation is also lower than the policy makers’ long-term forecast. The Fed’s preferred price gauge, which is tied to consumer spending and strips out food and energy costs, rose at a 0.5% annual pace, the slowest since record-keeping began in 1959, today’s report showed.
In their statement last week, Fed officials said inflation measures "have continued to trend downward."
Today’s report showed consumer spending rose at a 2.4% pace last quarter, the fastest since the first three months of 2007, while less than the 2.8% estimated last month. Spending added 1.67 percentage points to GDP from July through September.
Household spending figures for November, due tomorrow, may show a 0.5% gain following a 0.4% increase in October, according to the Bloomberg survey median.
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