WASHINGTON — The United States economy grew at a torrid 4.1 percent annual pace in the third quarter, the Commerce Department said Friday. That is the strongest growth in nearly two years, and only the third time the economy has expanded that quickly since 2006.
The Commerce Department revised its estimate of third-quarter growth to 4.1 percent from 3.6 percent in this release. The refined estimate is based on “more complete source data,” the department said, showing personal consumption and investment in things like factories to be higher than previously thought.
Economists had expected the final estimate of growth to be unchanged from that earlier 3.6 percent. But data showed that consumers have stepped up their spending on health care, houses and cars as the strengthening recovery has led to a sharp drop in the unemployment rate and rising home values have improved household balance sheets.
The Commerce Department bumped up its estimate of consumer spending, which accounts for more than two-thirds of economic activity, to a 2 percent rate from 1.4 percent, reflecting higher spending on goods and services.
The newfound strength has spurred the Federal Reserve to begin to unwind its bond-buying program, cutting its monthly purchases of Treasury and mortgage-backed debt. “In light of the cumulative progress toward maximum employment and the improvement in the outlook for labor market conditions, the committee decided to modestly reduce the pace of its asset purchases,” the Fed said in a statement this week.
The growth came from a broad range of sources: personal consumption, exports, investment in new factories and houses, state and local government spending and a rise in business inventories. Federal spending cuts and rising imports were a drag on growth, the department said.
Economists expect growth to slow in the fourth quarter, in part because some of the upswing has resulted from businesses building up their inventories.
While Wall Street “has been concerned with the swing in fiscal policy between 2013 and 2014, they should be focused on the swing likely in inventory,” said Steven Ricchiuto, the chief economist at Mizuho Securities USA, in an email. “A lot of this inventory is cars and light trucks.”
The St. Louis-based forecasting firm Macroeconomic Advisers expects growth to slow to a 2.3 percent pace in the fourth quarter, before picking up again next year.
“Receding fiscal drag, the waning effects of the sharp rise in yields since earlier in the year, continued improvement in credit terms and equities and building confidence underlie the move to growth of 3 percent or above over the next few years,” the firm said this week.
The stronger growth comes in spite of strong headwinds from Washington, including brinkmanship over the debt limit this fall that sent jitters through financial markets; the imposition of sudden across-the-board spending cuts known as sequestration in the spring; and an 16-day government shutdown in October.
“The economy is finishing 2013 in a stronger place than where it began the year,” said Jason Furman, the chairman of the White House’s Council of Economic Advisers, in a statement this week. “This is especially notable given the general fiscal environment, including the onset of the sequester in March.”
The latest revision showed business stockpiles grew to $115.7 billion, down from the earlier estimate of $116.5 billion.
In addition, consumer spending, which accounts for more than two-thirds of economic activity in the United States, was also revised higher, to a 2 percent rate from 1.4 percent, reflecting higher spending on both goods and services.
The growth rate was 2.5 percent for the second quarter.
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