Third-quarter growth cut on weak inventories

Tue Nov 22, 2011 4:55pm EST
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By Lucia Mutikani

WASHINGTON (Reuters) - The U.S. economy grew more slowly than previously estimated in the third quarter, but a drawing down of stocks held by companies and firm consumer spending suggested output would pick up in late 2011.

Gross domestic product grew at a 2.0 percent annual rate in the July-September quarter, the Commerce Department said in its second estimate on Tuesday, down from the previously reported 2.5 percent.

While the pace of growth was weaker than economists had expected, the composition of the report, particularly still-firm consumer spending and the first drop in businesses inventories in nearly two years, set the stage for a stronger performance in the final months of the year.

A deterioration in consumer sentiment likely had led businesses to anticipate weaker demand. With consumer spending showing resilience, analysts said they will now have to rebuild inventories, keeping factories busy.

"The mix or composition of growth improved. Inventory investment was lower so firms are more likely to produce more goods going forward. And exports rose," said Cary Leahey, a senior economist at Decision Economics in New York.

"So while you lost a half-percentage point in the revision to third-quarter growth, you might easily get it back in the fourth quarter of this year or the first quarter of next."

Data so far suggest the fourth-quarter growth pace could exceed 3 percent, which would be the fastest in 18 months.

U.S. stocks closed down for a fifth straight day as borrowing costs in Spain scaled another record high, underscoring the magnitude of the euro zone debt crisis.   Continued...