Economy expands at 4.1 percent rate

WASHINGTON - The U.S. economy grew at its fastest pace in almost two years in the third quarter while business spending was stronger than previously estimated, pointing to some underlying strength that should be sustained.

Gross domestic product grew at a 4.1 percent annual rate instead of the 3.6 percent pace reported earlier this month, the Commerce Department said in its third estimate on Friday.

That was the quickest pace since the fourth quarter of 2011 and beat economists' expectations for an unrevised 3.6 percent rate. The economy grew at a 2.5 percent pace in the April-June quarter.

Business spending increased at a 4.8 percent rate instead of the 3.5 percent pace reported early this month. That reflected stronger growth in intellectual property products than previously reported.

There were also revisions to consumption. Consumer spending, which accounts for more than two-thirds of U.S. economic activity, was revised up 0.6 percentage point to a 2.0 percent rate. The revisions reflected higher spending on both goods and services than previously estimated.

Revisions to spending on gasoline and other energy goods accounted for part of the upward revision to spending on goods, while spending on healthcare and other services also was higher than previously estimated.

Consumer spending grew at a 1.8 percent rate in the second quarter.

Business spending on equipment was revised up to a 0.2 percent pace. It had previously been reported as being flat.

That left domestic demand rising at a 2.3 percent rate, instead of the 1.8 percent pace the government reported earlier this month.

Export growth was also raised up by two tenths of a percentage point to a 3.9 percent pace.

Spending on residential construction was lowered by 2.7 percentage points to a 10.3 percent rate in the third quarter.

A large build-up of stocks still accounted for much of the increase in GDP growth in the July-September quarter. That has left economists anticipating a sharp slowdown in the pace of inventory accumulation, which would hurt fourth-quarter growth.

Businesses accumulated $115.7 billion worth of inventories. That compared to prior estimates of $116.5 billion.

So far there is little sign that businesses are pulling back, with stocks at retailers, auto dealerships and wholesalers increasing solidly in October.

Some economists say the inventory drag on GDP could be delayed until the first quarter of 2014, while others believe the third-quarter stock pile-up was probably planned.

An inventory drag in the first three months of 2014 is likely to be offset by some loosening of fiscal policy.