GDP surprise: Economy expands at 4.1% rate

Mike Snider, USA TODAY11:16 a.m. EST December 20, 2013


(Photo: Richard Drew, AP)

STORY HIGHLIGHTS

  • Significantly higher than previously believed
  • Fastest pace since late 2011
  • Economists believe current quarter's growth 2.5% or lower


Propelled by stronger consumer spending, the U.S. economy grew in the third quarter at its fastest rate in nearly two years, the Commerce Department said Friday.

The economy expanded at an annual rate of 4.1% over the summer, the government said in a sharply increased final estimate of third quarter gross domestic product. GDP is the value of all goods and services produced in the U.S.

That's the highest since 2011's fourth-quarter estimate of 4.9%.
The Commerce Department previously pegged last quarter's expansion at an annual rate of 3.6%. The economy grew 2.5% in the second quarter of 2013.

Last quarter's better than expected performance was spurred by consumers spending more over the summer on health care, recreation and other services. Consumers also increased spending on non-durable goods, mainly gasoline and energy.

The government says consumer spending grew at an annual rate of 2.0%, up from 1.6% in its previous estimate last month. Non-residential fixed investment, which measures business spending, rose at an annual rate of 4.8%, according to Friday's report, 1.3 percentage points higher than the earlier estimate.

The pace of the economy's expansion may not be sustained in the current quarter. Some economists forecast growth has slowed to 2% to 2.5% annual rate, in part due to businesses increasing inventories more slowly.

But Friday's GDP report suggests that the U.S. economy entered the fourth quarter "with more momentum than had previously been thought to be the case," said Richard Moody, chief economist of Regions Financial Corp. "And we expect that momentum to build further in 2014."

Consumer spending on household services had been expected to be flat but rose at an annual rate of 0.7%, Moody noted.

"If this seems a trivial revision, recall that spending on household services accounts for roughly two-thirds of all consumer spending," Moody said. "Business investment was also revised higher, mainly due to an upward revision in business spending on software, and growth in U.S. exports of goods also saw an upward revision."

The Commerce report said that business investment was driven by increased spending in intellectual property, specifically software. Corporate profits rose 1.9%, a lower rate than the 3.3% in the second quarter of 2013.

http://www.usatoday.com/story/money/...my-gdp/4140667/