U.S. economic growth revised upward

WASHINGTON - The U.S. economy grew faster than initially estimated in the third quarter as businesses aggressively accumulated stock, but underlying domestic demand remained sluggish.

Gross domestic product grew at a 3.6 percent annual rate instead of the 2.8 percent pace reported earlier, the Commerce Department said on Thursday. Economists polled by Reuters had expected output would be revised up to only a 3.0 percent rate.

The third-quarter pace is the fastest since the first quarter of 2012 and marked an acceleration from the April-June period's 2.5 percent rate.

Businesses accumulated $116.5 billion worth of inventories, the largest increase since the first quarter of 1998. That compared to prior estimates of only $86 billion.

Inventories accounted for a massive 1.68 percentage points of the advance made in the July-September quarter, the largest contribution since the fourth quarter of 2011.

With demand still sluggish, that means economic growth could slow next quarter as businesses spend less on adding to inventories.

"Unfortunately, all the revision, plus a bit more, was in the inventory component, while final sales were revised down a tenth to 1.9 percent," said Ian Shepherdson, chief economist with Pantheon Macroeconomics, in a research note. "There's no momemtum here."

The contribution from inventories had previously been estimated at 0.8 percentage point. Stripping out inventories, the economy grew at a 1.9 percent rate rather than the 2.0 percent pace estimated last month.