US growth in Q3 beats forecast

Nov 29 | Updated: Nov 30 2006, 06:12am hrs
The US economy expanded at a faster-than-expected annual rate of 2.2% from July through September, reflecting an increase in inventories that may limit growth this quarter.

The revised figure for gross domestic product, the value of all goods and services produced, compares with a 1.6% estimate issued last month, the Commerce Department said today. A measure of inflation watched by Federal Reserve policy makers was revised down.

A narrower trade deficit and more inventories helped make up for the biggest drop in home construction in 15 years. The economy may not gain much momentum heading into 2007 as housing remains in a slump and manufacturers trim production to pare stockpiles.

Economists had forecast a 1.8% gain for GDP last quarter, according to the median estimate of 70 estimates in a Bloomberg News survey. Forecasts ranged from 1.4% to 2%. Last quarters growth rate was still the weakest of the year.

Todays growth report is the second of three for the quarter. The Commerce Department will issue its final reading on December 21. The governments personal consumption expenditures price index, a measure of prices tied to consumer spending, rose 2.4%, compared with a 2.5% rise reported last month and a 4% second-quarter gain.

The index excluding food and energy, a measure favoured by Fed policy makers, rose at a 2.2% annual rate. The government reported a 2.3% third-quarter rise last month, and a second-quarter increase of 2.7%.

The government on Wednesday also revised personal income figures for the second quarter. Wages and salaries rose at an annual rate of 0.7% from April through June, down from a previous estimate of 7.7%. The measure grew 13.3% in the first quarter.

Business inventories rose at a $58 billion annual rate, compared with a $50.7 billion pace of increase previously reported and a $53.7 billion rate of increase in the prior quarter. Inventories added 0.16 percentage points to growth in the third quarter. The government previously estimated that inventories subtracted from economic growth.

Consumer spending, which accounts for about 70% of the economy, expanded at a 2.9% annual pace, compared with 3.1% estimated in October and a 2.6% pace for the second quarter. The median estimate in a Bloomberg survey of economists was 2.8%. A narrower trade gap than previously estimated contributed to the revision in the quarter. The gap subtracted 0.21 percentage points from GDP.