Third-Quarter GDP Growth Revised Lower

The U.S. economy grew more slowly than initially believed, the government said Tuesday morning. The Commerce Department revised its third-quarter reading of the gross domestic product downward, saying the economy grew at a 2.8% annual rate, rather than the 3.5% pace estimated last month. Growth was hindered, in part, by an increase in imports. Downward revisions to gains in personal consumption expenditures and nonresidential fixed investment also weighed on the new estimate. GDP measures the total output of goods and services within the U.S.

The advanced reading on Oct. 29 showed third-quarter gross domestic product rising at an annual rate of 3.5%, which was better than the consensus expectation of 3.2%. It was the first rise in GDP since the second quarter of 2008 and the surprise jump sent the Dow on a 199 point one-day joy ride. The newest data are expected to show a more modest increase in GDP of 2.8%. That’s possibly because spending, inventory and export data weren’t as robust as initially thought. The newest revisions were in line expectations.

Business inventories fell by $133.4 billion, slightly more than first estimated, despite the approach of the holiday season -- when retailers traditionally stock up. However, some observers say inventory depletion will soon spur new orders.

Consumer spending rose at a 2.9% rate during the third quarter, down from the 3.4% pace estimated last month by the government. The gain is still the largest increase since early 2007.

Economists say those numbers reflect government efforts to boost spending through programs like cash for clunkers and first time home buyers incentives. But with some programs expiring, the consumer will have to assist in the second wave for growth to continue.

This article is an excerpt from our Early Bird markets story, which was originally published the morning of Nov. 24.