US economy grew stronger 2.7% in third quarter

The US economy grew at a 2.7 percent pace in the third quarter, faster than previously estimated, the Commerce Department said Thursday in a report that nevertheless pointed to a weaker fourth quarter.

Gross domestic product growth was revised upward from the prior estimate of 2.0 percent, reflecting in part increases in federal government spending and private inventory investment, the department said.

Growth in the July-September quarter was the strongest of the year, and followed a meager 1.3 percent pace in the second quarter.

Still, growth remained modest as the world's largest economy headed into the fourth quarter.

"This morning's GDP report is one of those rare instances when growth is a lot stronger than in the advance report but the domestic economy turns out to be a lot weaker," said Chris Low at FTN Financial.

Growth in consumer spending, which accounts for 70 percent of output, was revised down to 1.4 percent, just slightly above the second-quarter pace.

Inflation slowed slightly from the second quarter. Prices rose 1.4 percent in the third quarter and the core price index, excluding food and energy prices, increased 1.1 percent.

Sal Guatieri at BMO Capital Markets said the weaker momentum in consumer and business spending and a jump in business inventories suggested a slower pace in the fourth quarter.

"Outside of the housing market recovery, the economy has little momentum as we edge closer to the year-end fiscal cliff," he said.

The Federal Reserve on Tuesday reported that businesses around the country are increasingly worried about the combination of significant spending cuts and tax increases that will occur in January unless politicians reach a compromise on a less severe deficit reduction plan.

Manufacturers said they were worried about the economy in 2013 "in part due to the uncertainty regarding the outcome of the fiscal cliff," the Fed said in its Beige Book survey of regional economies.

Economists say the $500 billion amalgam of tax hikes and spending cuts required by last year's debt-ceiling deal could pitch the US economy back into recession in 2013.

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