Inventories boost economic growth but trend weak

Thu Nov 29, 2012 4:44pm EST
 
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By Lucia Mutikani

WASHINGTON (Reuters) - The economy grew faster than initially thought in the third quarter as restocking by businesses provided a big boost, but consumer and business spending were revised lower in a sobering reminder of the recovery's underlying weakness.

Gross domestic product expanded at a 2.7 percent annual rate, the Commerce Department said on Thursday, with export growth also helping to offset the weakest consumer spending and first drop in business investment in more than a year.

It was the fastest growth since late 2011 and much quicker than the 2 percent rate the government estimated last month. But it was hardly a sign of strength as the lift from inventories will likely be lost in the fourth quarter.

Growth in consumer spending, which accounts for about 70 percent of U.S. economic activity, was cut by more than half a percentage point, suggesting the rise in inventories reflected unwanted goods piling up in warehouses.

The possibility of an inventory overhang, the drag from superstorm Sandy and fears over the so-called fiscal cliff look set to undermine the economy in the final months of the year.

Separately, retailers reported unexpectedly weak sales in November, which many pinned on the storm that ripped into the East Coast late last month.

"The headwinds for fourth quarter GDP have kind of intensified. At best, the economy may just coast its way into 2013," said Ryan Sweet, a senior economist at Moody's Analytics in West Chester Pennsylvania.

The fiscal cliff could suck $600 billion from the economy early next year and fuel a fresh recession, unless Congress and the Obama administration agree on a less-severe plan to cut budget deficits.   Continued...

 
Job seekers speak to recruiters at a job fair sponsored by the New York Department of Labor in New York, June 7, 2012. REUTERS/Keith Bedford